Hi Anon! I will just share some thoughts on this.
This might be quite intuitive to say, but you should stop your DCA when you realise that what you have invested in is bad. This is probably easier said than done I believe, for 2 reasons.
Firstly, evaluating the strength of the business isn't as easy as people tout it to be. The average retail investor may find it challenging to evaluate the strength of businesses which are more complex, such as technology, commodities or banks. DCA is also more for investors who have less time to monitor market peaks and troughs, so if you are already pressed for time, you might not even have much time to evaluate your investments.
I think this can be mitigated if you monitor your porfolio more consistently rather than sporadically, and pick businesses that you actually understand. It also greatly helps if you have an investment thesis, on why you are buying the investments in the first place. Buying shares from hearsay or speculation, isn't a good strategy at all.
Secondly, one of the strong suits of DCA is that technically you don't end up entering at a too high a price, and that you can in the long run capture the market upswing either through capital gains or dividends. However, if you use share price as an arbiter of a company's expected performance, then this would confuse your investments strategy.
I suppose one way to mitigate against this is to be concerned less with share price alone, and more with company fundamentals. I am reminded by Benjamin Graham's point that stocks do well because the businesses behind them do well, which makes common sense. Apart from looking at company's fundamentals, you can also look at financial ratios, profitability and metrics. Such resources can be found here on Seedly and on other sites like Investopedia.
Hi Anon! I will just share some thoughts on this.
This might be quite intuitive to say, but you should stop your DCA when you realise that what you have invested in is bad. This is probably easier said than done I believe, for 2 reasons.
Firstly, evaluating the strength of the business isn't as easy as people tout it to be. The average retail investor may find it challenging to evaluate the strength of businesses which are more complex, such as technology, commodities or banks. DCA is also more for investors who have less time to monitor market peaks and troughs, so if you are already pressed for time, you might not even have much time to evaluate your investments.
I think this can be mitigated if you monitor your porfolio more consistently rather than sporadically, and pick businesses that you actually understand. It also greatly helps if you have an investment thesis, on why you are buying the investments in the first place. Buying shares from hearsay or speculation, isn't a good strategy at all.
Secondly, one of the strong suits of DCA is that technically you don't end up entering at a too high a price, and that you can in the long run capture the market upswing either through capital gains or dividends. However, if you use share price as an arbiter of a company's expected performance, then this would confuse your investments strategy.
I suppose one way to mitigate against this is to be concerned less with share price alone, and more with company fundamentals. I am reminded by Benjamin Graham's point that stocks do well because the businesses behind them do well, which makes common sense. Apart from looking at company's fundamentals, you can also look at financial ratios, profitability and metrics. Such resources can be found here on Seedly and on other sites like Investopedia.