Skip to main content

What is the average cost method?

Due to the recent plunge in the global market, I noticed that some people came out to promote an investment method called the fool-style stock disaster investment method. The thinking behind it is similar to other lazy investment methods, or monthly stocks/funds, just to change the saying, I will dismantle the problems behind you one by one.

Let you see the risks you need to bear, first look at the logic behind this method. Its approach is this when the market drops 10%, you invest 20% of the funds to buy stock market ETFs when the market drops 20%, you invest another 20% when the market drops 30%, you invest another 20%, And so on. Until the market drops by 50%, you will put all the funds into the market, and when your average cost is equal to the market drops by 30%, you will buy all the funds in the market ETF (that is, All in).

It is a kind of average cost method. The principle of this method is that, first, he believes that the maximum decline in the market is about 50%. After that, it will no longer fall, so it is safe to buy market ETFs at this time. Secondly, as long as you buy every 10% decline, you can successfully bargain.

 Third, the cost is averaged to reduce the cost of some expensive betting codes. It sounds like a strategy, but please wait, think carefully, the following fallacies I and you disassemble, the danger of the stock market is that you sometimes use the wrong method, because of luck, the market can make You make money, this is miserable.

If someone tried to make money in this way. He will later feel that using this averaging down strategy is the correct behavior, and never knows what he is wrong.

What kind of thinking a person has will prompt him to do what kind of behavior, and those behaviors will be doomed, whether you are a long-term winner or a long-term loser in the stock market? what is the problem? The biggest problem is that one time you will buy a stock/index ETF with the same thinking. After falling 50%, you will fall another 50%, and then you can still fall another 50%. 

This is an error that continuously magnifies Dangerous behavior is completely a bet, betting that one time is correct. Many people have lost their entire net worth because of this behavior. Perhaps many people's awareness of the stock market disaster has only stayed in the last decade or eight years, or the bull market in the US stock market in the last 10 years. Those who advocate these methods will make history. The data demonstrates how safe these methods are.

Then I will take some historical data and show you the real examples of the past. This is the Japanese stock market in the 1990s. You can see that in the early 1990s, it was about 40,000 points. In 2003, its lowest position fell to 7,600 points. During the 13 years, it fell by more than -80%. 

Today, 17 years later, the Nikkei index is still only about 20,000 points. This example allows you to see that even in a mature market, the index can be halved from 40,000 points to 20,000 points, and then halved to 10,000 points, after which it can continue to fall by 25%. The fool-style stock disaster investment method.

After an average drop of 30%, all the funds are put into the market, that is, at about 28,000 points, all your assets can be evaporated by more than -70%, and after 30 years, you are still losing money. Let’s look at another example. This is a Malaysian index ETF. Let’s look at the stock market crash in 1997. It can fall from $64 to $8. In short, from $64 to 50% to $32. It fell 50% to $16 and then fell 50% to $8. To 23 years later, this ETF is only about $26 on the blue line.

According to the average cost and flattening strategy just now, your average cost is about $44. From $44 to $8, your loss is -83.6%. Another lesson from this example is not to think that the market index has fallen There is a limit. Don't ignore the exchange rate risk. In the case of the Malaysian market, in addition to the decline in the index, the exchange rate also fell at the same time, resulting in a "double kill of stocks and exchanges."

I don’t know which country’s currency you use. When you buy ETFs in other markets, you will also bear the risk of the exchange rate. Taking this example as an example, when the Asian financial turmoil, many Southeast Asian countries’ currencies depreciated significantly. The stock market also fell sharply. If you take a dip in emerging markets at this time, almost all will be lost, you might say that it was because of Soros that year, and it may not be the next time.

Let me show you one more example. This is the Brazilian market where many newcomers have been encouraged or promoted to buy in the past ten years. Let’s not talk about Brazilian funds, let’s look at Brazil’s ETF first. From 2000 to 2002, it fell from $20 to less than $6, a drop of more than 70%. It can also be slashed, and then slashed again, a total of -73%. During the period, the Brazilian real also depreciated significantly.

Let’s take a closer look. From 2011 to 2016, this Brazilian ETF fell from about $80 to less than $20. It can also be cut down, and then cut down again. Today, this ETF is only $30. You may not understand, Brazil’s index has reached a record high in recent years. The reason why this ETF is still at a low level is simply that Brazil’s currency has depreciated significantly over the past 10 years unless you are a Brazilian native and use Brazilian currency, or You are investing in Brazilian currency.

Of course, this risk is much higher, because Brazil’s interest rate is very high. Before 2017, its interest rate was more than 14%. Maybe you will feel that it is safer to buy these markets. It may be safer to buy in the US market, but if you are like this If you want to, I will tell you in an old-fashioned tone. Juvenile, you are too young. Looking at the US Nasdaq in 2000, you will see that even the seemingly safe US market can also be cut, and then cut again, with a drop of more than -78%. Of course, the probability of repeating the burst of Kwang stocks is not high.

I also like to invest in the US stock market myself, but I want to tell you that there is no such thing as "it will never happen" in this world. Even if it seems like the Great Depression in 1929, there is a chance to repeat it in the next few decades. This is no one can guarantee that it will not happen. Other so-called monthly stocks, monthly funds, and lazy investment laws will also make you fall into the above. Among the risks.

You can think about why some people put forward these proposals, and who is the biggest beneficiary? Banks, brokerages, and fund companies let’s visit friends and relatives around you without looking at the people in the media who promote this method.

Statistics, how many people make money in the long run? How many people lose money for a long time? What is their annual return for making money?

If they lose money, how much did they lose? I can tell you that I have done real statistics myself and interviewed more than 100 people. In the past 5 to 10 years, most of the people in this class have book losses and a few have profitable people. On average, the annual return is only 4 to 8%. If you are a Hong Kong person, you may wish to look at your provident fund. Are you satisfied with the average annual return in the past? Or ask the people around them, their provident fund account. What about performance?

What I want to bring out is that investing is a lifetime thing or at least something you will do in the next few decades, as long as it is only a successful move in your investment career. It is enough to evaporate the wealth you have accumulated over the years. If you have no sense of risk, let your investment fall by -50%. In the next few decades, your finances will always have a chance to get into big trouble. Use simple math to calculate:

If your investment falls by -50%, you have to use a 100% return to recover.

If it falls by -70%, you have to use a 333% return to recover.

If it drops -80%, you have to use a 500% return to get it back.

If it falls by -90%, you have to use a 1000% return to recover, which is 10 times.

In the whole process, you not only lose a lot of money but also spend a lot of time recovering your vitality. The emotional stress and trauma in the process can not be calculated. Those advocates do not need to bear any responsibility for your losses, but you have to take 100% responsibility for your investment decisions, so my advice to everyone is.

First, don’t be lazy or fool in investing. There is almost no chance in the world that you can develop without using your brain.

Second, be aware of what is useful and what is spam, because the information you receive affects your thinking, then your behavior, and finally your results.

Third, you must learn to master the best time to enter and exit.


Popular posts from this blog

TSM Stock Forecast and Price Target 2021

Today, I will analyze TSMC stocks in-depth with you. In the semiconductor sector, TSMC has always been my most promising stock. TSMC has just announced its results for the fourth quarter of 2020. At the same time, there are new developments in the entire chip industry recently. Therefore, today I will combine the financial report and chips. The latest developments in the industry to analyze the trend of TSMC stocks, First of all, we analyze TSMC’s fourth-quarter and full-year 2020 financial reports to see what are the key points worthy of investors’ attention. First, TSMC’s fourth-quarter revenue and profitability are very good.  Compared with the outlook for Q4 in Q3, the outlook at that time was US$12.4-12.7 billion, and the actual revenue was US$12.68 billion. Actual revenue As the upper limit of the outlook, the gross profit margin outlook is 51.5%-53.5%, while the actual gross profit margin is 54%, which is better than the outlook. The operating net profit margin is expected to be

INTC stock forecast 2025: Intel's acquisition of SiFive

SiFive, a chip design start-up company based on the RISC-V instruction set architecture, has received an acquisition intention from investor Intel.  A person familiar with the matter, who asked not to be named, said that Intel has offered to buy SiFive for more than $2 billion.  RISC-V with x86 and Arm  As we all know, Intel dominates the industry leader in x86 architecture chip technology, while SiFive focuses on open-source RISC-V technology and employs several founding members of the RISC-V architecture.  For a long time, the field of CPU instruction set architecture has been dominated by x86 and Arm. Since RISC-V was born at the University of California, Berkeley in 2010, it has gradually formed a certain competitive landscape with Arm after more than ten years of development.  With the gradual refinement of the application field, the model of one chip making the world has become a thing of the past. Facing the hot AI and Internet of Things market, RISC-V is becoming a semiconduct

Shopify stock forecast 2025:Is it worth buying?

  In the last year, the stocks rose relatively well. Another sector is e-commerce. Whether it is Amazon, Alibaba,, Pinduoduo, SEA or vertical e-commerce platforms Etsy and Chewy, all of them have experienced huge gains, while another category has benefited from the e-commerce sector.  The company is a website building tool company such as Shopify BigCommerce Holdings. Today I will talk about shopify, the leader of website building tools.  First, let's briefly talk about shopify's business model. To put it simply, shopify is a fool-like website building platform. In the past, when a company wanted to build a corporate website, it generally needed to find a dedicated person to design and maintain the website.  If you want to add shopping functions to the website, the cost of building the website will also increase. This is true for many small businesses and individual businesses.   A very difficult thing. Shopify uses the SAAS model to provide website building services.

Cloudflare's 4Q 2021 earnings report

 Just took a look at Cloudflare's (NET) 4Q 2021 earnings report. Cloudflare is in an area that covers several hot spots, including content delivery networks, i.e. CDNs, cloud computing, and cybersecurity. For the Cloudflare quarterly report, here is a summary: 1) Revenue of $194 million (then expected 4Q revenue in the range of $184 to $185 million), up 52% year-over-year ($172 million in 2021, up 51% year-over-year). 2) The number of customers continues to grow rapidly, with the total number of customers has reached 1416 (1260 in the previous quarter). 3) Non-GAAP gross margin was 79.2% vs. 78.1% in the same quarter last year (vs. 79.2% in 3Q vs. 77.3% in the same quarter last year.) Non-GAAP net income has started to turn around, meaning it has started to be profitable. 4) Revenue is expected to be in the range of $205 to $206 million in 4Q. That works out to about 6% YoY growth. Cloudflare had good results this time, beating its previous guidance. Revenues are still growing at a

TSMC VS Nvidia, AMD, Intel. How to choose semiconductor stocks?

The general pattern of the semiconductor industry, the overall trend and target price of TSMC in 2021, how the Nvidia(NVDA), AMD, and Intel(INTC) semiconductor stocks are laid out, what is the decisive factors, and whether there is a predictable time point, we conducted a more systematic discussion.  The big picture of the semiconductor industry The semiconductor industry is cyclical. Since the second half of 2019, global semiconductors have entered a new round of the business cycle. This is very important. Only when you understand this reason can you hold stocks with peace of mind. The following analysis is based on the time dimension. In the short term, looking at one to three months now, with the outbreak of the epidemic again, the production capacity of 8-inch wafers are in short supply, the semiconductor industry chain is out of stock, wafer foundry, packaging, and testing links have seen price increases, and production capacity is in short supply. High economic situation, In the

PLTR stock forecast 2025: Cathie Woods increased Palantir stock position

Software company Palantir (PLTR) released the latest quarterly earnings report, which performed very well.  After the financial report, Palantir's stock price soared to 14.64% at the highest point. At the same time, the keen Cathie Woods also bought $140 million in Palantir stock.  I won't talk about Palantir's specific business. If you don't know much about it, you can go back to my previous article.  Let's talk back to the financial report.  Benefiting from the benefits of the US government’s contract renewal, Palantir’s earnings per share and total revenue both beat expectations for this quarter’s earnings report.  Among them, earnings per share were $0.04, beating the expected $0.01; total revenue was 376 million, an increase of 49% from the same period last year, slightly higher than the expected $361 million.  Although the extent of beating expectations is not very large, the biggest highlight of the financial report is to broaden the business.   The value of

ARKK VS ARKW, ARKQ, ARKG, ARKF, How to choose ARK Innovation ETF?

Which ARK Innovation ETF is best? Let’s perform an Ark ETF review. Today, I will introduce to you the five actively managed ETFs in ARK INNOVATION. Let’s take a look at which types of companies they have invested in so that you can choose the industry you like to invest in. ARK INNOVATION was founded by Catherine Wood. This investment company is a revolutionary and innovative company that specializes in investment. Their company currently manages seven different types of ETFs, five of which are actively managed ETFs, and the other two One is an exponential passive ETF, Simply put, the biggest difference between these two ETFs is that for actively managed ETFs, they will frequently trade the company stocks in the fund, so the proportion of the company he holds will always change, while the index-type ETF is as they think. After purchasing the company, you will not be able to move it again. It is very similar to S&P500 or QQQ, except that the holding company is different. Then let

7 great investors' operating strategies to deal with the stock!

No one can be 100% sure about the outlook for the US stock market. Instead of entangled in whether the bull market in US stocks will end, it is better to think about what lessons can be learned from this plunge. Historically, due to the end of the summer market in September, U.S. stocks did not perform well. The plunge on Thursday sounded like a wake-up call for investors earlier. Be careful next week. Although Nasdaq is tolerant of faults The rate is high, but the up-and-down shock pattern has not changed, and there needs to be an established process. Investing in stocks should take a long-term view, have a long-term investment mentality, don't care too much about the rise and fall of one or two days, and don't feel unhappy because of the turmoil of the stock market, which affects the judgment of stock buying and selling. Today, let's take a look at how those familiar investment masters are invincible. The reason why masters become masters is that they have become masters

SNAP stock forecast 2025: Is it time to buy Snapchat?

In the US social networking industry, there are four listed companies. They are the famous Facebook, former US President Trump's favorite information publishing platform Twitter, photo sharing and social networking site Pinterest, and Snapchat, which is popular among young people. Most of them are between 25 and 55 years old and have used Facebook products more or less. But it is very new to Snapchat. In fact, Snapchat is a powerful challenger for Facebook. The greatest charm lies in rapid growth. In the past year, the stock price has risen from US$20 to more than US$70, and the company is now worth more than US$100 billion. Snap was founded in 2010 and is headquartered in California. The company's flagship product, Snapchat, is photo sharing and social networking software. The software comes from a "burn after reading" photo-sharing application developed by two students from Stanford University. In April 2011, founder Evan Spiegel introduced the idea of ​​his final p