Before I write a blog post on my main strategy in investing in equities, I shall first talk about a useful and seemingly simple “sub-strategy” which I had adopted: “averaging down”. “Averaging down” involves investing additional amounts in a financial instrument or asset if it declines significantly in price after the original investment is made.
The main advantage of averaging down is that an investor can bring down the average cost of a stock holding quite substantially. Assuming the stock turns around, this ensures a lower break-even price for the stock position and higher gains as compared to the situation in which the price of the stock was not averaged down.
From my own example, I had purchased Singtel at a price of $3.86 in July 2017 which was too high of a price to pay for Singtel. However, the price of Singtel plummeted to $2.96 in March 2019 due to...