Buy, hold, average down and invest for long term when price is down???

One will alway hear other people say: When you buy a stock at $X and if the price drop below $X, you can think of it long term and hold it till it rise back again. Or even better, you could average it down by buying more stocks of the same company such that your price per unit is lower and could earn back potentially more that what you earn.

The statement above I think is only true to a certain extent. I had been through it and understand what it really mean. For now, I would say it is not "buy, hold, average down and invest for long term." I would say that it is "buy, hold and pray".

However, basically this is what I am doing now, "buy, hold and pray." I had brought Healthway Medical Group on four occasion.

When I bought the healthway, I was naive (although wasn't much better now), I did not even understand how to read earnings, PE ratio of financial statements. I was blindly chasing the hype by Peter Lim. My average price now is around 0.164 whereas the current share price is 0.135.

Fundamentally, after analyse the financial statement of healthway group now, basically it earn around 10m less and has 10m less net income in 2010 as compared to 2009. This is due to high staff cost to retain the staffs and lower revenue. In addition, the PE ratio is around 96 and cash flow is not very good too. Furthermore it want to issue right at 1 for 8 at 0.075 to ask more money from investors.

Although I do not need the money stuck in Healthway now, but I am still thinking if I am going to sell it. Basically what I am doing is "buy, hold and pray" and believe that the management said "The Group is determined to restore profitability to previous levels." is true. It may really become true but it may also crash further...who knows? The stock market is unpredictable.

My cut loss skill is still quite clouded by emotions. I need to improve this aspect.  Meanwhile, I think I need to slowly decide as this cut will almost wipeout half of my realised gain so far although it become much lesser if I realised more gain from my current holdings. Hopefully I can decide before Healthway's AGM at end of april.

Nevertheless, through my experience I had learnt something:

"Buy, hold, average down and wait for the price to come back is only true for fundamentally strong stock." Example, I will be more than willing to average down stock like Singtel.

If not, it will become "buy, hold and pray."

This is an expensive lesson, investors who advocate "buy, hold, average down and invest for long term" please do not make the same mistake as me such that it become "buy, hold and pray".