Alternative to DCA

[TXBullion]

I just got to thinking, I never did significantly before. Whats the point of DCA, understandably so you average and such get the highs and lows. I was thinking about real estate. DCA is kind of stupid. You have a theoretical valuation of an asset, if your valuation meets the price you pull the trigger, if it does not, you do not pull the trigger. You wouldn't want to dollar cost average something just to do it right? I would like to get some input from people as Im pretty open to changing my mind on this topic as to what makes sense. Please let me know why DCA instead of only buy when you think something is a BUY?

[slickeast]

I am guessing if you bought 10 ozs at $40 and at 10 ozs at $20 your dollar cost average would be $30.

People will say that if you do this and sell out at $35 you are ahead instead of selling out at $35 when you only bought at $40.

Another reason is they want to know if they had to sell off everything at once, what is the dca of their stash. They want to know if they walk away ahead or in the hole.

[barrytrot]

I just got to thinking, I never did significantly before. Whats the point of DCA, understandably so you average and such get the highs and lows. I was thinking about real estate. DCA is kind of stupid. You have a theoretical valuation of an asset, if your valuation meets the price you pull the trigger, if it does not, you do not pull the trigger. You wouldn't want to dollar cost average something just to do it right? I would like to get some input from people as Im pretty open to changing my mind on this topic as to what makes sense. Please let me know why DCA instead of only buy when you think something is a BUY?

Actually you are defining proper DCA.

Only DCA when the item is "a Buy". When it is not, you do not. That simple.

For most investments the item will be a buy at several points, so you buy periodically to avoid missing out.

If it rises above "buy level" then you don't buy.

And, presumably once it reaches "sell level" you would liquidate at a similar inverse-DCA rate.

[inflationhawk]

I believe the theory is that no one can predict the future and just because you think something is a buy at a certain point in time (e.g. silver at 31/ounce) doesn't mean it isn't going to be a better buy two weeks later (e.g. silver now at 27/ounce). Over time prices fluctuate and sometimes you buy high and sometimes you buy low...you don't presume to know at the point of time you buy if you are buying low or buying high. If, over the long term, price goes up, you'll make money, but of course not as much as if you picked the bottom. Some people thought silver was a buy at 40+ earlier this year, I'm sure they see the value now in DCA.

Real estate is a whole other game. The barriers to entry are higher and not as suitable to DCA, unless of course you have mega cash at your disposal. There is also lots of costs involved with transacting in real estate. Something like silver that has fluctuated wildly in the past couple of years makes a lot more sense to DCA considering the price point for each incremental purchase.

[TXBullion]

I just got to thinking, I never did significantly before. Whats the point of DCA, understandably so you average and such get the highs and lows. I was thinking about real estate. DCA is kind of stupid. You have a theoretical valuation of an asset, if your valuation meets the price you pull the trigger, if it does not, you do not pull the trigger. You wouldn't want to dollar cost average something just to do it right? I would like to get some input from people as Im pretty open to changing my mind on this topic as to what makes sense. Please let me know why DCA instead of only buy when you think something is a BUY?

Actually you are defining proper DCA.

Only DCA when the item is "a Buy". When it is not, you do not. That simple.

For most investments the item will be a buy at several points, so you buy periodically to avoid missing out.

If it rises above "buy level" then you don't buy.

And, presumably once it reaches "sell level" you would liquidate at a similar inverse-DCA rate.

Thank you, that makes perfect sense with second part of the equation included. People always seem to leave that out when referring to DCA on this site, (maybe they don't do it). But they buy regardless, if its 50 or if its 18. Guess that would make sense thought too if they see silver as a good deal up until 145 and then thats there stop buying point.

Always great input from your end barry

[Nickelmeister]

My understanding of DCA is putting the same amount of money into an investment on a regular interval regardless of the price. The price will dictate how much or little you purchase. For example, let's say you choose to put $1,000 into silver on the first of each month. In month one, silver is at $25/oz and you purchase 40 oz. In month two, silver is now $33.33 and you purchase 30 oz. In month three, silver is now $50/oz and you buy 20 oz.

The advantage of this method is that you bought more ounces at the lower price. If done consistently with a fluctuating commodity you will end up weighting your purchases towards the low end.

[Jonflyfish]

Excellent record keeping ought to be a careful consideration as well. Especially when the time to liquidate arrives and FIFO applies.

Cheers!

[fb101]

Excellent record keeping ought to be a careful consideration as well. Especially when the time to liquidate arrives and FIFO applies.

Cheers!

is that fifo relative to the tax burden or some other significance;
I guess I'm thinking that if it comes time to get out, you just get out.
I suspect dropping my hoard won't significantly affect prices.....