Averaging into value requires being early
The guest argued that to achieve optimal position sizing in value-oriented credit investing, the earliest purchases must generally be made at the 'wrong' price.
The argument
He explained that if an investor waits for absolute cheapness, they will miss the opportunity to build a meaningful position. True value investing requires the patience to buy early, watch the position, and average in at lower levels as technical or flow-driven selling occurs.
The thesis, stress-tested
✓ What validates it
- ✓Successful accumulation of a full position size at a lower average cost basis prior to a fundamental re-rating
▸ Risks discussed
- ▸Catching a falling knife if the fundamental value of the underlying asset permanently deteriorates
- ▸Running out of capital or risk limit before the price bottoms out
Hear it yourself
"On the risk management front, Dave states that in order to get a position to a fully desired sizing, the first purchases generally need to be made at the wrong price. In fact, he says you quote want to be wrong on your earliest purchases and be averaging in at lower levels."
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