I recently asked a couple of respected posters what the Dollar Cost Average was for their HGH holdings. In the posts that followed, there appeared to some confusion about what I was seeking.(refer HGH post #1010 9/4/24)
Investopedia defines DCA as "a system of regularly buying a fixed dollar amount of a specific share" and as this definition is quite different from how I use DCA, I thought it might be helpful if I explain how I use DCA.
My version of DCA is not "regular purchasing of uniform amounts" but rather the; "opportunistic purchasing to improve my DCA as TA guides"
Please note - I use the Direct Broking/Jardens site to buy/sell my shares and their portfolio keeps track of my DCA (in most cases) so the following applies only to DB/Jardens records.
Below is an example using XRO which I first purchased in its early days on the NZX when the SP was growing and the TA looked encouraging. My first purchase was a mere 100 shares at $40 = $4,000. However soon after my purchase fears emerged about XRO's expansion into the USA. The TA changed and the SP started falling. At several stages I thought XRO's falling TA had 'bottomed' and so purchased more at various prices around $30 and $20. Then finally when I was sure the SP had really bottomed I bought a larger quantity of 2,000 shares.
The following chart shows how my DCA looked (rounded off for simplicity.) History shows that my faith in XRO was rewarded when the SP finally slowly climbed to over $100 as its success in the USA grew.
All of this would have been accurately accounted for in my Jardens portfolio with the Average holding cost.
But what happens to my record if I sold half of my XRO shares?? The DCA recorded in my portfolio records needs to be adjusted as follows.
To adjust for this, I used the "movements' tool in the Jarden portfolio management tools to reflect that my remaining XRO shares were now "free-hold" ie I had taken out my original cost via profits taken. So using the movements tool I adjusted my remaining holdings cost price to a nominal $1.00 and now my remaining XRO shows a more accurate overall % gain for my 'Free-holding" as the $1.00 shares reach $130 in current market value ie 13,000%
I currently hold ATM shares I originally purchased at $0.53 which are now well and truly 'free-hold" (as I sold the bulk of my shares between $18.00 and $22.00.) For my remaining free-hold shares I am currently showing a nominal free hold cost price of $0.53 showing a 1,080% gain on the current SP around $6.26
I also use the Movements tool to adjust for cash dividends. I simply deduct the cash received from my average holding cost. Again the % increase in my shareholding is more accurate.
If I sell my XRO or ATM shares and apply the to money purchasing other companies, I simply start the DCA process again with the new company.
That's what DCA is to me. I wonder what others do?
You right on leftie
I got DCA in it's true sense confused with just average cost
But then does one do that taking into account last profits (often leading to negative number, better than free carry eh) or just book profits and do a sort of first in first out and do calculation on remaining shares held
OK, I post for first time in long time.
Is holiday here and coffee is good.
Dollar Cost Averaging is what the Investopedia says,anything else is not.
You call your average dollar cost is wrong and confusing.
Way you change average when you sell with profit is also wrong. You just fooling yourself.
Shares you still have cost what you buy for not less any profit on other shares.
No shares free-hold. That is stupid.
I do each buy of same share is different trade own line in spreadsheet. Then can see good buys and bad buys.
I don't buy shares going down like your xro did.
Four things:
1) The Investopedia definition is the one I know.
2) Shares (common stock) are fungible, so calculating the average share price over multiple buys of the same stock is perfectly fine, in fact I wouldn't do it any other way.
3) I do not recommend averaging down on a poorly performing stock (a stock at or near an all-time low with no obvious oversold condition).
4) I look at Portfolio return, as the overriding equation; it helps with the psychology of needing to sell a losing stock; it allows for better/quicker usage of capital.
Thanks for your input folks.
Benji and Azz you are probably right that the term DCA is correct as per the investopedia definition...... I should call it something else to avoid confusion...... 'dollar averaging.. or 'SP averaging.'
I stress that I do not make a habit out of averaging down or buying in a downtrend. The XRO example above is simply me trying to adapt as the market unexpectedly moved against me.
The vast majority of my portfolio is made up of shares in which I have averaged up - not down.
Re "free shares," it's my way of highlighting realised profits and is only used it for those particular shares.... I do not apply it elsewhere or carry it forward to other purchases.
Quote from: Left Field on Apr 12, 2024, 07:52 AMThe vast majority of my portfolio is made up of shares in which I have averaged up - not down.
Good stuff. Same here.