What does the Club consider the minimum improvement in cost basis before buying more shares? Thanks, Tim As with many investing issues, the answer is, “It depends.” The two biggest things to keep in mind: you don’t want to keep buying shares at the same price; and you want each purchase to matter — meaning that it would materially lower your basis and/or provide you with a more attractive yield than your last buys. The reason we can’t provide a hard-and-fast rule is that each stock has its own characteristics. The volatility of a stock, its valuation, investor perception, along with near-term factors (earnings, industry data, an upcoming shareholder event) all play a role in a minimum pullback before putting more money to work. Consider a stock that trades in a tighter range or has a lower valuation, like Morgan Stanley (MS). We would use “narrower scales,” meaning a smaller decline in percentage terms below your cost basis might do the trick. Large drawdowns just aren’t as frequent in a Morgan Stanley as in a high-flyer like, say, Nvidia (NVDA). Indeed, a stock like Nvidia, which tends to be more volatile and trades at a premium valuation, “wider scales” — or larger declines on percentage terms below your cost basis — would be warranted before buying more shares. Volatility in shares of a company can be easily observed over time. But one measure that might help more casual market observers is a stock’s “beta,” which measures its historic volatility versus the overall market (generally measured by the S & P 500 index). A beta of 1 would indicate that the volatility of the stock is on par with the broader market. A beta above 1 indicates more volatility than the market. And, a beta below 1 would indicate less volatility. According to FactSet, Nvidia has a 52-week beta of 1.88, indicating it’s been about 88% more volatile than the broader market average. So, a 1% move (up or down) in the S & P 500 would, in theory, result in a 1.88% move in Nvidia. On the…
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