As an investor I was always in an impression to average the stocks which has gone down so that when it goes up I will able to sell it for profit I.e. averaging my losses. And I am not the only one who thinks this way there are a lot of people who actually things like this and tries to average as much as possible for only those stocks which has gone down considerably.
PC: Pixabay.com
Today I have learned about the concept of upward averaging. When a stock has given me a return like 100% or more, I will be reluctant to invest in thar again. But upward averaging states that you should invest in those stocks which has given you the maximum profit. Because a stock which has gone up will go up even more. Like you have invested in a stock and it has given you 40% returns. You invest more and the returns comes down to 25% and then of it continues to go up you will get double profit and overall percentage will increase.
This is called upward averaging. I really liked the concept because suppose we have invested in a stock which is quite low and it has given me a good profit. It doesn't mean that it will not give me more profit. Once you start averaging your buy price will increase and eventually when the stock goes up your total profit will go up.
For example, when the HAL starts to go up I have not invested more but now looking at the upward averaging I will invest in HAL more and take more upward averaging. Similarly for SBI too, I have the average cost is low and now I will invest more and more so that my averaging cost will increase. This is like you are giving your profitable stocks more weightage than your losers stock so that your profit will be much more.
