On averaging down (part 1) and San Miguel

Against the advise of many traders, I still practice cost averaging, partly because I find it as a way to minimize risks and be conservative on my bets. Chartists will be quick say that the method doesn't work and in fact risky, but I have good averaging up and/or down winning than losing moves. I'll write a few of my learnings on this method. Let's start with this first one...

AVERAGING DOWN LEARNING # 1

As in all securities that you should enter, one should cost-average down only if you believe in the company's fundamentals and management, not because one just believes in the method of averaging down. On a downtrend, averaging down can be purely catching falling knives.

And if the company is like San Miguel with brash Ramon Ang just diversifying like crazy and borrowing money and plowing along paying his managers high, while revenue and income are stagnant or decreasig, no method of cost-averaging can save the transaction.

This was my recent mistake.

San Miguel was among the last of the conglomerates to show strength, and among the cheapest (lowest in P/E), during PSEi's bull run from March to May, and I earned from its jump from ~113 to 123ish in near term, selling all shares before the downtrend to transfer funds to another one. I was aware of the huge debts this company has the inclination to rack up, so for sure SMC is not the company that should be for long term (it also doesn't pay much in dividends).

When the downtrend started, I cant believe a blue chip can go down 5% in one day without bouncing, more so in the backdrop of our scintillating gdp, so I reentered at point 1 below. Then the downtrend continued steeply, so i added in 2 at half the tranche of the first one . But then the downtrend continued steeply, so I added again in 3, a bit less than 2, hoping for a bounce to break even.

After a few days, traders are surprised to see that SMC is the lone conglomerate showing negative 30% year-to-date, amidst positive 30 % of its competitors! If this is not a slap in the face of SMC's board, I don't know what is. But RSA and Danding have nothing to say in their ASM, except something like "our fundamentals should speak for itself and help our shares up..." Goddamn, what are your 'good fundamentals,' SMC, compared to AEV, AC, et al? Decreasing income and increasing debts?

Damn these two cohorts:

By mid June, SMC is obviously weak and a clear laggard vis-a-vis its peers. There's no hope in gaining again in near term with SMC. Funds should have better use elsewhere.

As one last gasp, I observed that SMC's price seems to be bouncing in range, so I added a last position in # 4, which brought me to a final average price at 101, and then closely observed price behavior closely the following days and decided to sell at 92. With the gain in the bull of March - April, I still came out a loser by around 8 K with SMC. If i did not average down and stopped at 1, I would have lost only ~2.5 K.

This averaging down  was a mistake obviously 1) for fighting the clear downtrend (even falsely hoping for the short term bounce), and 2) betting on SMC.

# 2 is obviously the bigger mistake. I'll write more on SMC later.

But there's a coda to this story... In a few days after I sold it, SMC tumbled down further and harder on the rumor of a default, spread by IMF no less and Tiglao (ex press secretary which must be hunted now by Danding).
I was still thankful bottomline. And I do not intend to come back to this supposed Philippine institution unless there's management change or a staggering positive milestone like the promised turnaround of PAL materializes, or the bragged new airport really happens.