Don’t Get Caught In The Dollar Cost Averaging Trap | Phil Town

Eye opening message Phil thanks!! Dollar cost averaging is for people who dont know what they are doing and need extra protection.

……. I thought that was dollar cost averaging, lol. I do the same thing as this. I have a day job, so it's hard for me to constantly sit at a computer to buy and sell stock. What I do, however, is have a target buy price and a target sell price, but I usually stay within the same set of 8 stocks. If a company is going on a rampage while another one is going down, I will sell some of the rampaging stock to buy the one that is hurting a bit (even though the story hasn't changed). When that rampaging stock takes a few hits, I do the same thing with my other investments.

I just had to sell a few shares of a company and put them into another of my investments because of great performance. Many others are doing the same thing, because the stock took a (very) minor hit. My belief in the company has changed recently, which makes me have a higher buy price, so there could be a nice entry very soon (they are dealing with the suits in Washington right now).

One thing that is a must, for me, in this strategy is to own companies with dividends. These provide constant streams of revenue. I do not use a drip system, because there are some prices that I do not want to pay for the company. Usually, companies in different segments of the investment spectrum move up and down together. Which means that the dividends could be used in sectors that are getting hurt in the current economic sphere (usually created by good ol' Washington. These almost always pass.

Hard to believe a $10 stock could go to $20 in six months, then to $5, then to $1and not have a significant change in fundamentals.

“Dollar cost averaging doesn’t guarantee a profit” stopped video right there and knew this guy was clueless, if over the past 100 years market has had a 7%+ avg return rate then how would you not be guaranteed a profit?

The method proposed overexposes you on the stocks that fall, which might contradict your investment strategy.
I think a better way is rebalancing the portfolio, which is very similiar.

Phil gives some good advice but I strongly disagree with him here. I believe what Benjamin Graham (Father of value investing) said about DCA. DCA in modern times, is a great way for an investor to make money with the index over time, regardless of market trends. It is spoken of very highly in his book, The Intelligent Investor.

Everybody should read this book who is interested in value investing. Warren Buffett says it is, "by far the best book on investing ever written." All I can say beyond that is, learn from the master first then from his students.

I completely agree. Understanding the company is more important than DCA on a overvalued company

Love this video. As of today in the KLSE market. The stock market just going down and down due to political fear reasons. However, I am confident to put my money on hold here as i know currently the constant dividend returns is at a whopping 5% to 6%. The next time if it reach another down turn by half, The dividend will reach double to almost 10% to 12%. Based on the fundamentals the company had been constantly providing dividends without failing the investor with a strong cash cow backing. Stockpiling this share as i know that this company is expanding into another new industry which will grow the company. All i need to do is to wait for the next bargain the right price to enter. In fact i am planning to double my position too 😀

Is payback time the same as investment horizon? If so, how do you calculate it?

I can´t help but watch these so called "recommendations" without seeing the absolutely fundamentally flawed thesis they are built on.

1. No one can foresee the markets. True. Yes, some experts can come very close in guessing, but very few people on this planet can do that. And to then base a whole argument that the average Joe will "learn" how to spot this, is just silly.

2. It is absolutely insane that you sit and flat out throw out figures like a 15% annual growth, and eventually 50% annual growth, for any company. That is simply a baseless statement with no factual grounds to back it up as that is so far from how the reality is for 99% of all companies out there that it becomes ridiculous.

3. To go with those assumptions that "Hey, now I´ll buy one stock at $10, watch it go down to $5, buy some more… wait 5 years and tadaa.. it has now grown by 15%-50% a year ever since, and I take home $200k. Wow". I don´t know where to start on that one and how insanely simplified that "stock market" example is. At least it´s completely detached from reality.

4. To dismiss broad index funds with stocks in maybe 1,500 companies in just one stroke like that also proves you seemingly don´t give sound advice. That, and to also dismiss DCA in the same sentence is also baseless arguments. The global stock market grows on a 10 year period, on average 8% per year. To in your case, target just "one great wonderful company that grows 15%-50% per year and invest in that", if it was that easy to spot the next Apple… well then everybody would do that. But to instead invest in 1,500 companies in an index fund, that gives the average person a much bigger advantage and a lot less risk that what you are suggesting, which to be honest I don´t even consider real suggestions as they are so detached from reality that the "advice" should come with a red warning sign.

5. To dismiss the idea of "buying when the stock price is high" and to "wait till it drops", that is also just crazy due to first of all the obvious, NO one knows when the market will swing (it can take 15 years). And also stocks and funds with a record high price have statistically been proven to be followed by an additional 40 record high peaks – so to simply "wait for it to drop" and buy is not a sound advice.

6. Same as buying a falling stock compared to gamble on horses. If a horse has come last in 29 races, would you bet on that to win in race 30? If not, why would you do that on a stock that has been falling for 29 days in a row…

What do the 4 Ms stand for?

From what I understand DCA can be used while invested in S&P. It would be a smart way for the average man to invest without having to stare at charts every waking minute of his life.

He is completely right because dollar cost averaging doesn't give you optimal results when you compare it with the compound rate of return with even a fixed price of a share.

DCA only works if the stock eventually goes up.
If it goes down you're screwed.

How do you calculate payback time ??

Dollar cost averaging is used by working people to slowly invest in index funds and mutual funds usually in 401K and IRA`s.

Let's see, DCA doesn't work if you don't follow the system, and if are really smart and make sure you buy low, you are better off?

I thought dollar cost averaging is just buying every time it goes down , example I have few shares of MSFT at 100 each , so why invest every month regardless of price when I can just wait to be anything below what I paid. Of course if it doesn’t go down I’ll just invest money on others that are down. Am I missing something? I seen other videos say you invest every month regardless of price to dollar cost average. Sorry I’m still learning all this. 🙂 and thanks for very informative videos Phil.

I do VA with 5 companies I won shares in. I do a Intrinsic value of the company every quarter to ensure the value of the company for margin of safety. Depending the price/share at the next quarter will determined the shares needed for 3% growth. I average 12% growth yearly on each company.

I do that with fuel.

Unlike the other people here, I learned from my years as an individual saver to not use DCA for buying silver as a form of savings. Fortunately, I got in when silver was $6-7 per oz. What I did was buying silver as much as I could afford in the early years, and as the price got higher, I would stop buying or not buy nearly as much as before. When I sold out, I still made double what I put into it.

Instead of using DCA… Let's say that you had $10k to work with for 5 years ($166.66 per month regardless of price). What I did was, if the price was lower, I bought as much as I could afford. When the price was higher later, I bought very little at the most, if at all. When the price dropped again, I would use the money I should have used (for DCA), but saved instead, in the previous months or year or so and then went all in with that money saved at a lower price. At the end of 1, 2, 3, 4, or 5 years, I would have ended up investing the same amount planned for the time period into a larger number of oz of silver. When I had to sell out, I ended up with twice my savings. I could have made more, but the market was moving so much that it was difficult without doing the work needed to judge where the exit point was really at. I just had a pretty low entry point. I still made far more money than a person with my low level of knowledge would ever get from a savings or CD account at brick-and-mortar banks, period.

Do weighted average dollar cost average..

Would it be possible to make an introductory video on how to evaluate companies and the real value of a company and its stocks price. I am learning from your videos great deal and I do appreciate the work and efforts that were put in creating your outstanding channel. Thank you!

Yeah DCA individual stocks is dumb. But DCA index ETFS is fine

HOLY CHRISTMAS

Investing in my 401k is like dca. Is that ok?

What about value averaging?

What about my current Strategy. I take from my paycheck each week, I dollar cost average into an ultra-diversified series of ETF's every week with the same amount of money. I then take lump sums out every 2 months and hunt around looking for good undervalued companies to invest in.

I am Dollar Cost Averaging in, but still using the rule 1 principles and the 4 M's. I'm not trying to time the market, but still on the hunt for value. I like having rules around my own personal investments to stop emotion taking over.

Do you have videos about how to determine the value of a company? You talk about that a lot but don't explain it.

Also, how can you exploit the power of compounding when you're in cash all the time and waiting?

In short your advise seems to be "Buy low, sell high"… No shit Sherlock. But selling means you cant compount and buying low is not explained because determining value is still a mystery to me.

How to calculate the years of return? Don't get it

the problem with DCA is when you start , say you started 1930 you would have done great , say you started 1927 it would have taken 23 years just to get your money back on that 3 years

Holy Christmas!

So, DCA is the same as DRIP? According to what you are saying, instead of letting it DRIP, we should take the dividend in cash and buy other tasty stocks with that money?

This is the ultimate essence of value investing. I don't understand why people don't get this strategy!!!

Holy Christmas!!