When to Top Up?

Stocks not drinks.

This post serves as a note-to-self to refine the right process to top up names that are already in the portfolio. It deserves a post because of how our monkey evolved brains work with all its biases and blind spots. It also describes why investing is difficult because the initiation of a position is the start of a very long process for value investors. The position could stay in the portfolio for years, an initial bump up makes it difficult to top up later on and a mistake, when we bought something bad, will take years to unwind.

The scenario we are talking about here is usually when we have done an initial analysis on a name, decided it was worth to take the risk and buy an amount. However, things did not pan out the way it should, bad news erupted, shit hits the fan and the stock collapsed, usually c.20%. We need to decide if we should buy, sell or hold. After years of going through some of these scenarios, having gained some experience, I believe the following would be the right pro…