The Dying Art of Cost Averaging

Not a few friends whom I introduced to stock market investing have already went on to become “experts” in their own rights. It’s understandable, anyone has the right to advance further his/her knowledge in everything. Everyone has the freedom to move forward.

I remember teaching a couple of friends on how to play the guitar back in high school. After less than a year of extreme and hardcore practice, the two guys went on from just being “rhythm guitarists” to becoming the hottest, loudest, lead guitar players not only in school but in the whole town back then.

The once honest purpose of just expressing their emotions through guitar-playing has found their new talent as their gateway to popularity and public acceptance. They didn’t want to be left behind in the local music scene.

And then they began to criticize the boring system and style of simple strumming of the guitar. The finger-tapping, fast plucking style of guitar-playing became the “in” thing, thanks to MTV and VH1.

The old school strumming started to become the “beginners’/untalented” brand of guitar-playing.

The Dying Art of Cost-Averaging in the Stock Market

The same thing is happening these days to our younger generation of stock market investors. Everyone who started investing in the last two years by way of few mentors who introduced cost-averaging method as the slow yet sure way to building wealth over time have finally realized that there are more exciting ways to skin a cat.

A lot have decided to study how to read the charts (even during working hours). I know some who have been fighting with their spouses over the lack of time for their family. Just because they needed to time the market and earn more”for the sake of their families”.

Many of them started to become critical of their broker’s analysts. Some have even questioned the credibility of their original mentors in the area of paper asset investing.

It is sad that those who once set their long-term goals have decided to focus on their short-term needs using short-term strategies only. They have become emotional in their investing.

The Style is Fading But Cost Averaging Still Rocks!

I’ve interviewed a couple of stock market investing veterans and are proponents of the peso cost averaging method in investing.

Fitz Gerard Villafuerte tells his story:

I discovered the stock market back in 2001. I traded it and lost P25,000 after 6 months. I swear never to go into stocks again.

In 2005, I read about cost averaging and tried it, investing P5,000 every month on my first stock, Jollibee.

8 years after. I’m still buying Jollibee. From P30 per share back then, until to P130 per share today, I’ve been buying it.

8 years after. My Jollibee stocks alone is up 300% – I’ve tripled my money effortlessly, spending only 5 minutes each month to read fundamental news on the company.

Cost averaging on so-called stock market GEMSS works for me. And it will work for everyone else.

Pol Espanola, a former OFW, a CPA and an investment solicitor says,

I look for young people in their 20s, convince them to invest in equities the slow and steady way – the turtle always wins, lead them to open a mutual fund account, and hopefully coach them along the way. My nieces, some are still in school, already invest through mutual funds.

Let me just tell you that the term or phrase “cost averaging” is not meaningful and “compounding interest” is not helpful in these times.

Is cost-averaging dying? Has it become a boring drink in a wild rock party?

If you used to do cost-averaging and shifted to a more aggressive approach, could you comment below and say what made you decide to change your strategy?

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Photo/Image credit: matsubokkuri, Andre Karwath