Thread: Economics Investments & Personal Finance
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Old 01-25-2013, 09:18 AM   #30
Swanman Swanman is offline
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Quote:
Originally Posted by La literatura View Post
About this (famous) token advice, how contradictory is it to the principle of "dollar cost averaging?" Are these two separate strains of financial advice, or are they compatible?
Not really contradictory. The way I used to average out my holdings is I would have let's say 5 different index funds that I wanted to keep at certain proportions. After a certain amount of time when I wanted to invest more, I would look at the current proportions. If one had underperformed the others, I would need to buy more to bring the proportion back to where I wanted, thus dollar-averaged down.

Buying low and selling high is a classic contrarian approach and is the opposite of the normal herd mentality. Contrarians will dump stocks when they are at/near their 52 week highs and buy the shit out of stocks that are at their 52 week low (unless there are fundamental reasons why the stock is tanking). Many people use the momentum approach where they keep buying the stock as it's price continues to go up and up. That's great with stocks like Apple but you always run the risk of buying right before the stock falls off a cliff. A classic example is a buddy of mine that bought Etoys right at the beginning of the tech bubble. He bought it at $77 and later sold it for $2.
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