The Dillema of Pyramiding
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While pyramiding is widely acknowledged as a sound investment practice, not everyone feels at ease with it due to the fear of purchasing at higher prices. Many investors hesitate, fearing the stock might decline after reaching those levels. A friend of mine is holding IRFC from ₹29, and although the stock has surged to around ₹165, he hasn't increased his allocation for a strange reason. I asked him if he had not increased his allocation at higher levels because adding more funds to IRFC would lower the percentage gain displayed in the app. He said yes. If a stock doubles from ₹100 to ₹200, the return percentage is 100%, but adding an equal amount as the initial investment would reduce the return percentage to 50%. While the pyramiding system often yields higher absolute returns in the long run, emotional attachment to the perceived profit and loss restricts decision-making. Many aspire to become investors like Rakesh Jhunjhunwala or Warren Buffett, but few match their discipline. These successful investors didn't buy stocks in one go; instead, they patiently waited for their portfolios to grow over the years, investing more in winning stocks through pyramiding. Riding winners and cutting losses according to a disciplined system are crucial for investment success, and pyramiding is a proven method for maximizing gains.
@Prashant-Shah @Brijesh-Bhatia -
Nice information Ravi
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Nice one Ravi Bro
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@Ravi-Shinde, so here comes the role of XIRR instead of absolute returns for pyramids.
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@Harjjap S Saini sorry, I couldn't get your point sir. What is XIRR? Apologies for my lack of knowledge.
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@Ravi-Shinde, as taken from Google, XIRR stands for Extended Internal Rate of Return is a method used to calculate returns on investments where there are multiple transactions happening at different times.
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yes exactly sir. that is it. thank you for sharing this. XIRR is the key.
