Forum Archive Index - October 2000

["Derek Watt" <watt250@hotmail.com>]

The following example illustrates why averaging down on FSS is not that 
attractive if you are planning to take up the rights issue.

Say you bought 5000 shares at 60 c ($3000)
and take up the rights issue ($2500)
You'd then have 15000 shares with an average cost of 36.7 c

Now say you average down with current prices (at 36c):

You bought 5000 shares at 60 c ($3000)
Then bought another 5000 shares at 36 c ($1800)
and then take up the rights issue ($5000).
You'd then have 30000 shares with an average cost of 32.7 c

The difference is only 4 cents per share (11%) despite averaging down 24 
cents per share (40%).

Therefore it is probably only worth averaging down if you want more shares 
rather than if you want to recover losses.

Derek


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