Skip to main content

Cost Averaging for a Period VS. Buying Low-Sell High Strategy

 

I think it can be a heated debate at times between (1) cost averaging and (2) buying low and then selling high strategies. I was looking at what Warren Buffett said with this:

If you like spending six to eight hours per week working on investments, do it. If you don’t, then dollar-cost average into index funds.

I prefer to call it simply cost averaging. It's where one puts the same amount of money per month for a selected period. It's like the PHP 8,000.00 rule where one may choose to invest PHP 1,000.00 for eight months or PHP 2,000.00 for four months in buying stocks. Meanwhile, Buffett advises that most people should buy index funds instead. I decided to get the Philippine Equity Smart Index Fund via cost averaging and did some lump sums during the crash. 

Cost averaging is pretty much a safer way to avoid timing the market. The market moves not just during the opening but also during the closing. That's why I pretty much want to avoid playing casino with daily stock trading (read here). I decided to try a day trading simulator and found out how stressful it can get. It's like playing at the casino. Charlie Munger even called it a speculative orgy. Vulgar language but I can't help but agree with it. As Buffett also says:

If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes

Timing the market means waiting for the next crash or the next rise. I'm not saying timing the market is bad per se. Some people prefer to wait for stock prices to go down before they buy. It's because some prefer the advantage of lump sum investing. Meanwhile, risk-averse people are better off cost averaging such as putting PHP 1,000.00-PHP 2,000.00 per month in a stock index fund. It might be better to invest a reasonably small amount per month and a lump sum invest during a crash. The rule that follows is, "Invest only what you don't need now."

In my case, I'm pretty much an emotional investor for some time. I've made bad mistakes due to a bad temperament. I even allowed someone to buy in credit thinking only about the returns and not the risks. I nearly entered pyramid scams because of emotions. I decided that cost averaging might be the best for me. Besides, my horizon might be either two years, three years, five years, or even ten years. Buffett's strategy is pretty much in the long term. That is, never expect to get rich quick. Having my MBA is useless if I've got a bad temperament. As Buffett says, temperament wins over intelligence. Nobody should get the pleasure of being for the crowd or against it. Follow the right, not the crowd or those against the crowd. I need to be careful not to prematurely sell any funds just because of a slight increase. 

Some people manage to time the buying low and selling high strategy. They may have learned to time the market well. I guess such people aren't that emotionally carried. Still, I think there's wisdom in setting a reasonably small sum of money for a monthly investment and doing a lump sum during a crash. It would be like investing PHP 1,000.00 per month on a regular then getting PHP 5,000.00 for the crash, and then when prices rise up a bit, investing PHP 1,000.00 again every month. It's value-cost averaging. Invest the money that's not needed for now. But a beginner may want to think, "Invest only what you can afford to lose." because mistakes are bound to happen. These mistakes can happen such as impulse selling. Instead, investing by cost averaging (for a set period) would mean reducing losses. However, I'd believe that saying to invest only what you can afford to lose can be very self-defeating (read here). I used to believe that back then while ironically getting defeated by bad credit

Right now, I'm not going to argue too much about it. Some people have better risk management styles. In my case, cost averaging might be the best way for the more risk-averse and emotional type. I want to invest in the long term. I do lump sum only when prices are super low. However, I do cost averaging as much as possible to reduce the risk due to daily fluctuations. Hopefully, I can take Buffett's advice to heart and practice it consistently. 

References

Websites

"Buying the dip: Is this a good strategy when markets are falling?" by James Royal (May 26, 2022)

"Day Trading Definition: Why It Differs From Investing" by Sam Swenson, CFA, CPA (Updated: June 28, 2022)

"Warren Buffett: Why This Bear Market Could Be an Investor's Best Friend" by Catherine Brock (July 9, 2022)

Popular posts from this blog

The Malaysian-Filipino Sweet Tooth Demographic

As a Filipino, I've observed the Filipino diet tends to lean on a sweet tooth. What causes this probable genetic disposition of the Filipino to crave sweets? That trait might be traced to one's ancestors. Newsweek also mentions it might be with the DNA . The Malaysians and the Filipinos have close genetics. The Britannica also cites this about Filipinos: The ethnically diverse people of the Philippines collectively are called Filipinos.  The ancestors of the vast majority of the population were of Malay descent and came from the Southeast Asian mainland as well as from what is now Indonesia . Contemporary Filipino society consists of nearly 100 culturally and linguistically distinct ethnic groups. Of these, the largest are the Tagalog of Luzon and the Cebuano of the Visayan Islands, each of which constitutes about one-fifth of the country’s total population. Other prominent groups include the Ilocano of northern Luzon and the Hiligaynon (Ilongo) of the Visayan islands of Panay...

Learning Mandarin Chinese Through Melons

Hanlin Language Center In pursuit of encouraging people ot learn Mandarin Chinese, here's a chart teaching the different types of melons in Chinese. Learning how to speak Chinese with these melons would be a productive exercise. Aside from using what was often called bon toi in the Chinese schools, it might be good to help people memorize these types of sentences, with the translation: Chinese: "天气热,想吃西瓜." (Tiānqì rè, xiǎng chī xīguā.) Translation: "It's hot, I want to eat watermelon." Chinese: "你想喝冬瓜茶吗?" (Nǐ xiǎng hē dōngguā chá ma?) Translation: "Do you want to drink winter melon tea?" Chinese: "我要做南瓜派." (Wǒ yào zuò nánguā pài.) Translation: "I'm going to cook pumpkin pie." Chinese: "用黄瓜去眼袋." (Yòng huángguā qù yǎndài) Translation: "Use cucumber on your eye bags." Chinese: "苦瓜对你的健康有益." (Kǔguā duì nǐ de jiànkāng yǒuyì) Translation: "Bitter gourd is good for your health." Chin...

A Consequence of Adobe's Subscription Model?!

As I look at this video, I don't regret not opening an Adobe account. I used Adobe Photoshop back in college--back when I could borrow someone's CD and install it on my computer. However, paying thousands of PHP  monthly  is ridiculous for a casual user! Why would I pay thousands of PHP just to produce artwork that I'm not even selling? Back then, I used Photoshop mostly to relax during semestral breaks in college. What happened to the good old days? As I listened to this video, I was disgusted at how Adobe could be a "Get Rich Quick Scheme" against its customers. Instead of selling Adobe Photoshop (or any service) outright (that's until the newer version arrives), they decide to use the subscription model. I could understand if Adobe offers a subscription model for intensive work that requires intensive power. Meanwhile, Adobe could offer a one-time purchase of any of its software for non-professional use. This reminds me why relying on past successes isn...

Keep Calm and Continue Investing in Stocks, Despite the Current Situation This 2025

FQ Mom It's no secret that   U.S. President Donald J. Trump's tariffs may backfire . Should I even be surprised at the results that the global stock market are going low? It's something to think about why I didn't get invested in stocks ASAP. It's because I don't have a calm personality. However, I realized that the key in stock market investing is, "Keep calm and invest long term." Nobody should ever think of investing in stocks hoping to get rich quick fast!  The   FQ Mom   provides useful advice that I should do, as I check my equity funds at an almost daily basis: 1. Understand the stock market. It is the avenue where we can all participate in the ownership of the listed companies. This facility that allows us to buy and sell stocks with ease anytime during trading hours also goes with a “price.” We see the stock prices go up and down like crazy every second, something that does not happen in other asset classes. To borrow from Benjamin Graham in h...

Getting Nuts About Standard Chinese, By Learning About the Chinese Names of Nuts

Hanbridge Mandarin In pursuing the need to teach Mandarin Chinese, it's important to deviate from the old-fashioned Chinese language education (read here ). Instead, we need to get people interested in basic vocabulary. This would be a good exercise to learn from basic sentence making and conversations.  Here's an example of what's called bon toi back in my day. Let's think of learning Chinese through nuts. Question: 你想要巴西坚果、核桃、杏仁还是腰果? (Nǐ xiǎng yào bāxī jiānguǒ, hétáo, xìngrén háishì yāoguǒ) Translation: Do you want brazil nuts, walnuts, almonds, or cashews? Answer: 我想要杏仁,非常感谢. (Wǒ xiǎng yào xìngrén, fēicháng gǎnxiè.) Translation: I want to have almonds, please, thank you very much. However, there's a mistake in the chart because the coconut isn't a nut. Instead, it's a coconut fruit of the coconut tree, of the coconut palm family. The song was written by Filipino musician Ryan Cayabyab.  Now, it's time to enjoy learning Chinese through learning about n...

The Lesson of "Bad Genius" is More Than Just "Cheating Never Pays Off"

Sometimes, much truth can be told in fiction, right? Talk about how the great Jose Rizal revealed much truth in his fictional novels Noli Me Tangere and El Filibusterismo . The digital age today would create more entertaining media. I may encourage book reading over movie watching. However, some movies may do more than entertain. They can also address a real issue. It was said that a cheating scandal in China inspired the producers Jira Maligool and Vanridee Pongsittisak to create the film  Bad Genius . Right now, there's even a TV series presumably because a movie can't always deliver the message one wants. How does the whole thing go? I was inspired to watch this film because of comments from a Facebook friend's post. The post also talked about how students cheat because the system cares more about grades than learning.  As the world becomes more global, exposure to Thai cinema is definitely not surprising. Sure, one can talk about the South Korean wave or the increasin...

Why I Support Taiwanese Politician Yeh Yi Jin's Proposal for Taiwan to Drop Zhuyin Entirely (in Favor of Pinyin)

Taiwan News It may be news from 2018 (meaning, five years ago) but as a person who sees the importance of Mandarin in the international market, I still want to react. Not surprisingly, Yeh Yi Jin lost the Tainan mayoral bid because of her controversial statement to abolish Zhuyin from Taiwan altogether . She may have lost the race but I'm still supporting her for this. It's not because I kept failing hard in Zhuyin back in my days. It's because I feel that as time goes on, some things need to be dropped like asking students to submit their reports written via typewriter or asking documents to be faxed when email (and modern standard mail) are more reliable. Like I argued with an investment before, I said, "You can't fax a book. Can I just mail it?" The bank kept arguing it had to be faxed. Unfortunately stubborn boomers, stubborn boomers, everywhere, right? From The Free China Post , this is what's said about Yeh's argument: Yeh argues that using zhuyi...

The STUPIDITY of Insisting that Equity Restrictions in the 1987 Constitution of the Philippines Exist for "National Security"

As the call for economic charter change goes on, I feel the need to educate some people with common sense . I'm reading comments on Facebook that 60-40 (or any similar ownership restrictions) is for the "security of the Philippines" or that certain sectors can't be allowed 100% ownership on the part of the MNC. Once again, do I need to remind people for the nth time that 100% FDI ownership is all about share ownership ? Sadly, many Filipinos misunderstand what 100% FDI means (read here ). What 100% FDI ownership means is that MNCs don't need to look for a Filipino partner, only to be burdened with having to give up 60% (or more) of the net profits after taxes  and they only keep 40% (or less). That's why I called such an arrangement as overpriced rent (read here ). Some of these people I ran into on Facebook (of all places) are too beholden to Atty. Hilario G. Davide Jr. It was last 2018 when Davide Jr. also said that the Philippines may become a "colony ...

How I Believe the Public Service Act of 2022 Will Benefit the Philippine Business and Economic Environment

One of the greatest news for the Philippines is the Public Service Act of 2022. The following can be read from the Philippine News Agency regarding President Rodrigo R. Duterte's signing of the new law into action: President Rodrigo Roa Duterte on Monday signed into law a measure amending the Public Service Act (PSA), allowing up to 100 percent foreign ownership of public services in the country. Republic Act (RA) No. 11659 or "An Act Amending Commonwealth Act No. 146 otherwise known as the Public Service Act” as amended was signed by Duterte in a ceremony at the Rizal Hall, Malacañan Palace in the presence of lawmakers and other officials. Under the amended PSA, the telecommunications, railways, expressways, airports, and shipping industries will be considered public services, allowing up to 100 percent foreign ownership in these sectors. Duterte also led the ceremonial presentation of newly enacted laws namely RA 11647 which amends the Foreign Investments Act; RA 11650, whic...

The Irony the Philippines Starts the Christmas Season in September BUT Many Filipinos Love Last-Minute Christmas Shopping

  Uproxx As Christmas is just around the corner--I feel more stress coming in! It doesn't help when people try to use the late Andy Williams' "It's the Most Wonderful Time of the Year" to try and skip the problem. It's already known that most Filipinos love to start Christmas in September . However, the irony is that Filipinos start Christmas early but do their Christmas shopping late. If they began the Christmas Season early, shouldn't they think about what to do before December strikes?  Two years ago, I wrote a post discussing last-minute Christmas shopping . Many Filipinos tend to do last-minute Christmas shopping. They had all of November (when the Christmas sale usually begins) but why do the Christmas shopping in December ? One of the things I blame is the one-day paycheck lifestyle (see here ). It can be observed that many Filipinos never learn to prioritize more important things . One can get their stars when they see their paychecks. However, the...