Investing Strategy after initiating a new position

Hi Valuepickr,

I am new to investing but have been reading a lot of stock stories and making my own over the last 1 year.

I usually initiate a small position when I find an interesting stock. Then I add as I understand more about the business and feel more confident about its long-term growth. At this point I have not invested a significant amount in the business but not an negligible amount either. I want to add more but the price has gone up by 20-25% in the month it took me to complete my analysis. Do I add more at the current price or wait for it to fall? And how should I do my buying - One big lot or multiple smaller lots?

There have been a few stocks I have not been able to add because it went up and then they went up more. I don’t want to make the mistake again.

Let me know how to go about it.

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[quote=“drd, post:1, topic:6083”]
Do I add more at the current price or wait for it to fall? And how should I do my buying - One big lot or multiple smaller lots?

There have been a few stocks I have not been able to add because it went up and then they went up more. I don’t want to make the mistake again.
[/quote]I don’t have the answer for you but I can share my understanding based on about 3 years of active investing and around 10 years of passively following the markets on and off.

You will have to figure out the answers yourself. To be successful in this line you have to have discipline. To have discipline you have to have confidence on yourself, your rules and your process. To develop confidence you have to put in effort and figure all of it out yourself (For Buying, Selling and scaling in and out of positions) suited to your mental makeup. There are no shortcuts.

Some (mostly value investors) scale in to positions on the way down and some (mostly momentum investors) do exactly the opposite. There is no right way for all but what works for you and you are the best person to figure that out.

As famous trader and father of the Turtles, Richard Dennis told Jack D. Schwager in the book Market Wizards;

I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.

My takeaway from that quote is that you should not enter the market on borrowed conviction, rules or process else the market will figure out a way to make you pay.


Hi Pankaj,

Thanks for the input. I do understand that I will have to figure it out myself but I wanted to know what the other value investors are doing.

My conviction is not borrowed. As soon as I find a stock I find interesting I add a small quantity to make sure I do my due diligence on the stock. Usually what happens is during this due diligence it goes up 15-20% and at that time I don’t know if I should wait for it to fall or just buy.

Waiting for it to fall is not really the right strategy IMO. Ideally if you have high conviction about the stock and convinced about the valuation (this is the critical part) being not too high 15-20% higher cost should not matter when you are looking for a multi-bagger over longer term.

Averaging up is good as long as the fundamentals of the stock hold. You need to keep few key moniterables in mind. List out 2-3 important things that fundamentally drives the business - continued growth of core product, successful launch of new product. As long as you feel confident that business is on right track and valuations are reasonable you can keep adding to your position. When things slowdown - few slow quarters, sectoral headwinds etc. you can sit quiet (we are not talking about selling still as we still have conviction in the business) and start buying when things look up again.

A Stock making new highs while still being good business at reasonable valuation is a good buy/hold.


Thanks for a great reply. This helps a lot.

One more thing I’d like to know, say if a company has increasing revenues however due to a one- time problem (say flooding) incur a huge expense which pushes its profits down. Should I remain invested, because all other factors that made it a good investment still hold true, or exit as this might be an industry problem (say in agriculture/aquaculture).

Buffet Says , if a v good company is going through a one time prob which can be solved and its not affecting the business over the long term. you Can buy.


generally that kind of one time extraordinary expense should not be an issue. But then it is all about the context of that particular company - for a agri products company something like a flooding would be part of fundamental business risk. Similarly Pharma company facing notice post inspection of their plant is also a regular business risk.

My 2 cents - I have recently started adopting this investing strategy and this is very much in implementation phase so it doesn’t stand the test of time

For any new idea that I like - I now allocate a minimum ~5% of capital to have any meaningful impact on my portfolio and ensure I’m serious about tracking the business/company updates. To allocate that 5% capital - I have to have a reasonably good amount of conviction otherwise there’s going to be severe punishment from the market. To build that conviction - there are at least a few minimum checks which can take anywhere from 4-12 hrs to perform for me. In my opinion, ValuePickr Forum has beautifully helped us divide the potential investment returns (valuation is very important as well) by analysing the following two parts:

  1. Business Quality - In jargon that would be looking for a sustainable competitive advantage. But I don’t specifically spend time in trying to understand the moat and do the following:
    a) Just look to stay away from sectors such as Commodities (Oil, Metals, Sugar, etc), highly commodity dependent - Airlines, Steel, etc. Government regulated (Power, Gas, Banks, etc.). Also define your circle of competence in terms of businesses that you understand well (fairly small CoC for me at the moment and I’m happy within that)
    b) Study sector specific trends and basic analysis of opportunity size compared to company’s existing revenue (Annual Report may contain good information)
    c) Company specific 3-5 year Sales growth, PAT growth (check earnings/business seasonality), EBIT/PAT margin trends, D/E, RoE trends (have minimum thresholds for all this analysis) - apart from these, there might be a number of other financial metrics people check in terms of DSO, working capital, inventory turnover, etc.

  2. Management Quality - number of checks that I do
    a) History of Dividend payout (almost reluctant to invest without Div yields of ~1% unless company’s growing more than 40-50% with high ROICs)
    b) Existing Promoter Holding and trend
    c) Equity dilution history/trend
    d) Watch as many recent management interviews as I can find and compare results with management guidance given previously - can also observe many other things through the interviews
    e) Conservative/aggressive attitude in terms of leverage/debt - history of debt taken
    f) Types/history of corporate disclosures (Company website, BSE site)
    g) Check for known history of poor corporate governance and straightaway avoid

And probably as important a piece of information as the above two - Valuation and Margin of Safety! I will just not enter a business without any reasonable MoS. In fact I don’t analyse any business/company that’s trading at rich valuations of >30-35 TTM P/E, >5-6 P/B (financials), 3-4x rise in price in few months.

All of the above can be done within 4-12 hrs (thought about the time it takes again and updated this) if you know where/how to look for this information.

As my conviction builds up, I’ll be willing to take that position size up to 10-15% - ONLY if it still has a reasonable MoS based on my analysis.

Since my investing strategy is different from yours for initiating a new position itself - I don’t know if this helps you much.


Ive seen a lot of people follow this. I guess what they say is true -

You invest, then you investigate :slight_smile:

I keep on buying till company doing well, I select stock near 10 PE even if they move in short time, they not costly. If company doing good I keep buying even it gets costly. My buying and selling depend only on company performance and I know it’s obvious I won’t invest all money at lowest point. I will chose to invest more when my confidence increase when company doing better than risk my money for high returns.

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I don’t invest without investigation, even though stock move 20% cause I am looking for multibaggers stock 20% isn’t much for stocks me looking so rather than select wrong in hurry I will delay. There are many opportunities waiting always.


I think @pankajs response is very precise.

In my experience there are few common successful style that individuals start with and then use the one that they find more comfortable when it comes to portfolio building. The base is sort of common.

  1. Calculate intrinsic value and add, research & then update the idea on the intrinsic value.
  2. Either
    (a) add or sell more based on the difference from your calculation of intrinsic value, OR
    (b) you take a view on the market and the stock that you evaluated and based on the combination of these two you add/sell.
  3. You create clear rules and based on that you add/sell
    (b) There is a book called “F Wall Street: Joe Ponzio’s No‑Nonsense Approach to Value Investing…”

My suggestion would be to follow all three steps. The probability of success is higher. And at the end of each year or 3 years. Sit-down and study the losses of your portfolio. At the end of 3-5 years sit and study the companies that you missed out (opportunity loss). In less than 3 years, what may look as a missed opportunity could be mass hysteria but if you review them at the end of 5 years, you can develop unique perspective.

p.s. I dont invest in stocks because of ethical reasons. But I have been covering the investing space for 8 years.