DCA for idiots...(meaning me)

I've been trying to keep close tabs on my DCA but it is getting hard.

I buy and I roll search.

Right now I average my buys, average my finds, and then combine them for a total average.

I've sold a couple rolls of 40% roll search finds and will be using that money to buy back 90% tommorow. (thanks a alot Bernanke for spiking the price up. )

Anyway, it's making my head hurt trying to figure out how to keep my dca accurate. Any tips are appreciated.

 

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Well.......does it have to be that accurate? I just keep a text list of specific buys & sells--that's what really matters IMO.

For instance, this one: 1992 Silver Eagle Dollar Roll (20) Bu (bought Jan. 2006) $224.49 ( How much do you think I wish I'd have bought 20-30 ASE rolls at that price?!). I'm getting a bit OT, but I say, just keep a record of each coin/roll/lot....

 

With an investors mindset I want to know my exact dca compared to spot so I know if I am making money or losing it!

I also want to be able to keep my purchased silver dca seperate so I can see if I am buying wisely over time. Hopefully roll searching will always keep my overall in the black.

I recently sold 2 rolls of 40% and bought back 90%. It took me a couple days to make my purchase so I took a loss on the price jump. I would really like to know how to figure that into my DCA.

I appreciate if anyone can speak to this.

 

You are not speaking of DCA, merely average purchase price. Big difference. Simply keep track of each ounce you buy and sell, (since you do different types try inputing the cost on the basis of per ounce of pure silver), and mathematically calculate. Its a simple weighted average spreadsheet.

Dollar cost averaging is a method of investing, not a calculation number.

 

Hum... I understand what you are saying, dollar cost averaging is when you spend the same amount of money on an investment every month regardless of it's price.

In regards to silver I am used to people saying my DCA is 17.50 as an example. meaning that they may have bought some ounces at $9 and and some at $40 but the average cost of all their ounces is $17.50.

Mine is a bit more complicated, or at least I am making it so! Right now I am keeping my average cost in two seperate categories. My roll searching finds which only cost face value, and my purchases.

I recently sold two rolls of 40% half dollars for roughly $190. My cost was $20. so I have $170 profit. I then turned around though and bought $193 in 90%.

I'm not sure how much I should figure as my cost for the recently bought ounces as I was really just converting the found silver to bought silver. It was not a perfect swap though so I do need to somehow figure in my loss. Does my question make sense?

 

Again, you are asking to calculate your weighted average cost for silver, not anything to do with DCA. Lets put together a scenario:

Bought 10 ounces at $7
Bought 10 ounces at 15
Bought 10 ounces at 30
Sold 10 ounces at 27

So, before you sold the 10 your weighted average price is (10*7)+(10*15)+(10*30)/30=$17.33 an ounce. After the sale your average price is $12.50. However, your average for the first 20 ounces was $11, so buying high and selling low cost you.

 

I would calculate as such;

Revenue-expenses=profit/loss

190-20=170

Then revenue-expenses=profit/loss again..

0-193=-193

add together your two profits...

170+-193=-23

Expense of 23 dollars incurred. Add any quantifiable expenses (Negative number, not positive, obviously, hence pushing your cost for the rolls higher) for procuring the two rolls of 40% silver.

 

It is common form on the Kitco forum (I lurk but don't post) to say your DCA is X number of dollars, mean that the average cost per ounce of thier silver stack is X. maybe it is just a part of that forums culture. that is here nor there though.

try this scenario:

i buy 6oz for a total of $20 or 3.33 an oz
I sell the 6oz for $200 or 33.33 an oz.
I buy 6 oz of another type of silver for 250 or 41.66 an oz

I would not have to say that my average cost per ounce is 41.66 if I bought it with previous silver profits would I?

could it be the original investment of $20 but the added cost of 50? 6 oz for $70 or 11.66 an ounce?

That would be my actual investment amount. I think I just talked myself through this! Unless anyone sees any errors in my logic.

 

In that case $11.66 an ounce would be your weighted average cost per ounce. Add up all buy cost, subtract sell cost, and get a net investment and divide by quantity held.

 

Thank guys! i knew it was simple math, i guess I just needed to start playing with simplified figures to work it through.

I think I will stop keeping track of each individual ounce i own and what I paid for it.

If I put the 11.66 per ounce ounces in my "bought" ounces it would artificially lower that average. If I put it in the "found" ounces it would incorrectly raise that!

It may be a fools task to try to keep them seperate if I am going to be buying and selling.

 

At the costs us roll searchers acquire silver at, there's no real point in selling. Just hold it.

<--- $320 face in a SDB.

I consider it a part of my "Where are we going to get $25k for a down payment on a house?" fund.

 

I agree. I just wanted to flip some of my 40% into walking libs. I'm maining stacking for the investment, but I might as well fill in some books while I'm at it. What the fun in having a hundred coins of the same date?

If I do it again I will only agree to sell at wednesdays spot price as that is the day I can get to the LCS. I got hammered by this recent rollercoaster waiting until I could get over there. It was only around 6 oz though so I don' think it will cost me the house!

 

I sell my 40% to cover random expenses in life, and stack the 90%. I also use the 40% to buy coins of numismatic value, insulates me from a possible deflation of the PM markets. I think I've got something like $1k in slabbed Morgans, and $2k-ish in slabbed Mercs. Not a ton, but then again, I've only sold around $300 face in 40% silver.

 

DCA isn't exactly easy the longer you are in the game. I have a meticulously detailed spreadsheet with all my purchase prices per how many ounces with insane formulas taking into account trades, which I treat as sales and use the sell price as the buy price for what I traded for, and subtract the sell price from the initial purchase price. The only easy way I can think of to do DCA is to buy buy buy and never sell. I don't even keep track of junk silver either. That's a whole different animal. For my purposes it helps that I don't plan on selling unless the price is much higher. Then I don't have to worry about what I paid, and honestly I don't really care either. I just want a strong position (and a good portion of my collections completed) before this ride really gets going.

 

Well.......that's why I focus more on tracking "specific lots"--meaning the price of certain rolls, or lots, or individual coins. I feel like it keeps me more "honest", when I buy & sell. And so I know exactly how much I make or lose when I buy & sell a certain bullion lot, roll, or coin.

Just my own approach, thought I'd throw it out there, certainly didn't mean to offend anyone who focuses on DCA.....

 

Not picking on you Inflexion, but I just want to stress this point one more time. Everything that everyone is talking about here is "Weighted Average cost" NOT DCA. A weighted average cost is how much on average you paid for something doing multiple purchases. DCA is an INVESTMENT METHOD, not a calculation method.

If other places are using them interchangably, they are WRONG. If you talk to anyone in the financial industry or business and ask them what their DCA cost is, you will look "uneducated" to put it in polite words. Its just a matter of terminology, but I just wanted it to be clear so an CT member looks brilliant.

Chris

 

Ahh yes.. weighted average is just nice to know if you want to calculate where you stand. Apparently DCA is pretty much what I do, steady buying regardless. However if you might indulge me something about it doesn't make sense.

From Wikipedia:

So the goal of DCA is to achieve a lower weighted average cost, but if you are investing the same amount in something over a period of time how exactly does that equate to lower purchase price? It seems like that would only happen if the price goes down, otherwise as it goes up your total average cost would rise. I'm not quite grasping how this concept is beneficial aside from the accumulation standpoint, which I am all about with silver, but I don't see how that helps keep costs down. I could have a much lower average cost if I didn't keep buying steadily, but that's less silver too so it's a price I'm willing to pay

 

Do you know for a fact that each month silver will go up indefinitely? If yes, DO NOT DCA. Now, if you don't, I will show you the difference between DCA and simply buying X ounces a month.

Pretend silver goes from 33 to 50 to 100 back to 50 then to 33 in a period of time. Also say Inflexion has $100 a month to spend, or he wants to buy 2 ounces a month. Now, under DCA his weighted average cost would be:

(33*3)+(50*2)+100+(50*2)+(33*3)=$45.45

and buy buying 2 ounces a month

(33*2)+(50*2)+(100*2)+(50*2)+(33*2)= $53.20

DCA is good if you DON'T KNOW where the market will go short term, and is preferable to buying equal quantities per month. There are other reasons psychologically as well, but I don't mean to rehash this argument with Cloud again.

Chris

 

Makes sense.. the cheaper the price, the more quantity you can afford to buy with your static dollar amount. The higher the price, the less you can buy with that same amount, and thus the less weighted you will be at the higher cost. I am not really doing DCA then, although it would be if I limited my purchases to a specific dollar amount instead of how many dollars I have to spare.

 

Modifed DCA can be fine too, if you believe you have superior knowledge. Say you see it $27 and believe that is a steal long term. You can put even MORE in at that time. Problem is psychological, most small investors get excited and want to buy more when its high, and forget about it and don't buy at all when its low. That is the psychology aspect of it, it FORCES you to buy more when its low and people are peeved off, and it limits them when its going up and they get excited. Seeing small investors over the years I believe this is the greatest advantage of the strategy.

Like I said though, if you believe you have superior knowledge, feel free to act on it. I would simply say try to keep these tendencies in mind and make sure you aren't fooling yourself. I buy stocks when the market is low. Many times it makes me sick to my stomahc to buy when they have tanked, but I remmeber this fact, and now if I feel sick about an investment, I know its probably a good sign long term.