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Saturday, August 23, 2008 7:14:04 PM
Decision: Potential Outcome(s) Result
1) You sit tight
Stock Recovers Good! Your position
worth more.
Stock Tanks more Good! You can buy even
lower or you lose
less.
2) You buy more
Stock Recovers You are
still down, just not
as much.
Stock Tanks more Lousy. down more. risk
more.
I have never done this, but it is a really useful model. I think this is the basis for Options Pricing. You could put probabilities and dollar outcomes to each path.
Point is, I like Decision #1 myself. Buying more in the hope of lowering your loss or potential loss = Greed. One of the Seven Deadly Sins..
i had this like a spreadsheet with tabs.. did not work. you get the idea.
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