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Risk of Averaging Down?

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August 12, 2010 – Comments (5) | RELATED TICKERS: TTM

Hello Fools!

      I just wanted some Foolish thoughts and feedback about averaging down. One of my holdings, Tata Motors (TTM), has really been holding it down lately. It reached a new 52-week high 3 days this week and continues to surge, seemingly untouched by the barrage of economic reports this week. Jaguar is kicking ass. They're launching Ace in Europe and India. The Nano production is picking up. Most importantly, (!!!) commodities are flat and shouldn't pick up until next year, which will help TTM keep expenses down.

      However, if you take a look at TTM's 1-yr chart it seems to rise for a period of 3 months, touch a 52 week high, and then come back about 10%. The beginning of the last upward trend occured about 3 months ago (the 3 month mark is next week) and TTM hit a new 52 week high this week.

     I bought at the beginning of the last upward trend and I'm up about 25%. I am totally comfortable with the stock and don't mind holding it for the long term because I really see TTM going up from here in the future. BUT, given the cyclical pattern in the charts I thought maybe I would sell now, wait for it to go to about $20, and put the same amount of money back into it. That would be equivilent to me buying shares at about $16.25 a share vs $17.66 where I recently bought in.

     Any thoughts or stories about averaging down or TTM in general? I'd like to hear your feedback.

                       BlacknGold

5 Comments – Post Your Own

#1) On August 12, 2010 at 1:18 PM, chk999 (99.97) wrote:

I'm long TTM and have been for years. This is a complex company to figure out as you have the basic cyclicalness of the auto industry, plus country and currency risk, but to balance that out the Tata family are very good at business and India is going to grow amazingly. So it will probably do very well over the long run, but the short run will be bumpy.

This stock is very volatile, so it might be a good one to trade if you can see a pattern that actually works.  

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#2) On August 12, 2010 at 1:28 PM, EnigmaDude (91.06) wrote:

I agree with your strategy and it is one that I have successfully employed with other stocks.  It's never a bad idea to realize a profit!  There is the "danger" that the stock price won't come back down below $20 so you may want to sell just half your shares.  But most likely it will retreat again at some point and then you can decide if that is still the best use of your money.

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#3) On August 12, 2010 at 2:10 PM, Melaschasm (56.76) wrote:

Your idea isn't bad, but if you expect to have additional cash to invest, you could take advantage of future dips by buying more shares, while holding your current shares to reduce short term tax problems and the cost of trading.

This would not be as aggressive in 'averaging down' but it is an option, if you are confident about the long term growth of TTM

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#4) On August 12, 2010 at 9:58 PM, TMFBlacknGold (98.62) wrote:

Wow thanks Fools. I know there is a risk that it may not come back down to my target or may go higher after I sell. With my luck, both of those things will happen. I ran the numbers but I'm still not sure.

Won't the recent surge in volumme translate into shorts getting out? (which I presume happened during the last few spikes)

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#5) On August 13, 2010 at 8:49 AM, TMFBlacknGold (98.62) wrote:

This is interesting...

http://economictimes.indiatimes.com/Stocks-in-News/articleshow/6302397.cms

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