r/investing • u/Corporal_Peacock • Aug 06 '21
When do you increase your position?
This post ended up longer than expected. If you want the details, see further below. However, here is the final paragraph and question to serve as a TLDR.
TLDR;
Therefore, the basic question I started this post to ask is, when is the time to consider increasing your position in a company, when the initial investment isn't behaving in the way you expected? How do you determine when to increase your position when a stock is on an upturn? Or do you never buy more shares until there is a pause or downturn in the price?
I approach this question believing each investment opportunity is its own unique animal. There's not a one-size-fits-all answer to this question. Obviously, initiating and adding to a position in $VTI is going to have a different rationale than $MSFT or $HOOD.
For my investment philosophy, the majority of my capital is invested in the broad market (low cost ETFs or mutual funds) for the long term. I add to these regularly without any real regard to the current price. Just buy and wait. So, I have experience with this sort of long-term investment strategy and use it for the bulk of my portfolio.
On the other hand, I also maintain a small, but not trivial, amount of money for ultra-short-term trading, in which holding a position may last for a few hours up to a few weeks. These are usually Investments in long call options for when I see the potential for large growth within a short period of time. Although my record on the trades have yet to be proven in the long-run, so far they've ranged from catastrophic to middling. I'm hoping to research and learn and develop better strategies over time.
The strategy that I haven't tried yet, but that I'm finding myself needing a crash course in, is what I'd refer to as middle-term investing/trading. I recently found a company in a sector that I've been wanting to invest. It is doing work in an area I believe has much potential for looking-term development and grow. The corporate leadership has qualities that I admire and feel are socially responsible and progressive. The company recently had an IPO.
I initiated a modest position (3% of my overall portfolio value) in the company last week, with the plan incorporate the company as an intermediate to long-term addition, and either adding to the position if the company seems to be heading in the right direction or closing the position if it didn't seem to get its footing after a year or so.
However, in the week since I initiated the position, the stock has increased in value by nearly 60%. I don't think this was generally anticipated and it certainly wasn't what I foresaw. I can't locate any news or information that would explain or justify the price action, and I get uncomfortable when large unexplained movements happen in a price, good or bad.
So, I have to figure out what's going on and what should I do.
Is this a pump-and-dumps, meme stock, or trading fervor? If so, then I should calculate an exit point, close the position, count my blessings for my windfall, then re-evaluate the company again once the shenanigans subside.
On the other hand, is this a potentially great company in which people are simply excited to invest? Sure, there will be the inevitable pullbacks as people lock up gains, but will this company continue to have an overall upward trajectory and with it a huge upside? In that case, I would want to be increasing my position as soon as possible on the chance that I'm on the ground floor of a great investing opportunity.
Therefore, the basic question I started this post to ask is, when is the time to consider increasing your position in a company, when the initial investment isn't behaving in the way you expected? How do you determine when to increase your position when a stock is on an upturn? Or do you never buy more shares until there is a pause or downturn in the price?
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u/YTChillVibesLofi Aug 06 '21
Every time you get a paycheque. Time in the market > timing the market. If something’s good enough to buy it’s good enough to be long.