Portfolio Value Averaging - PVA

In my last post on Rupee Cost Averaging, I mentioned that there is an advanced technique of averaging, which is a bit harder to master than RCA. That is called Portfolio Value Averaging or PVA.
In RCA we focus on investing equal cash values every time we average. In PVA we focus on maintaining an equal Portfolio Value each time we intend averaging. In this method we put in more cash when the prices are down, and less cash when the prices are high, in order to maintain an equal incremental value in the portfolio.

It works out as follows:

First we must decide the equal amount of value we must have in the Portfolio.
Then we keep investing cash in order to maintain the incremental value every time we top up the portfolio.

Say you've decided to maintain an incremental value of Rs. 10,000.00 each time you top up the portfolio. If the price at the start is Rs.10.00, then in order to make your portfolio having a value of Rs. 10,000.00 you need to buy 10,000/10 = 1000 shares. The next time you decide to top up first check the portfolio value of your 1000 shares. Let's assume that the price has gone up to Rs. 12.00, and as such your portfolio value now is 1000 shares x Rs.12.00 = 12,000.00. Therefore in order to top up to match your portfolio value upto Rs. 20,000.00, you need to invest only Rs. 8,000.00, and not another Rs. 10,000.00 like in the RCA. So in order to maintain a value of Rs. 20,000.00 you need to buy Rs. 8,000.00/12 = 667 shares. After the 2nd investment you will have 1000 shares + 667 shares at Rs. 12.00 making the portfolio value 1667 x 12.00 = 20,004.00. Then let's say on the 3rd time the price has fallen to Rs. 8.00, then you have to put in 12,000.00 in order to top it up to Rs. 30,000.00. As such you buy Rs. 12,000.00/ 8 = 1500 shares at this stage. After the 3rd investment you will now have 1000 + 667 + 1500 shares = 3167 shares or a portfolio value of Rs. 30,000.00 at an average of 9.47. The next important point in this method is when the price go up over the present average price. Then you do not need to top up, instead you sell in order to bring down the value to match the multiples of Rs. 10,000.00. Say on the 4th time the stock has moved up to Rs. 14.00, then your 3167 shares will have a value of 3167 x 14.00 =  Rs. 44,338.00. Therefore you need to sell Rs. 4,338.00 worth of shares to bring the portfolio value down to Rs. 40,000.00. Also at this point onwards you could decide to stop the investment, if you feel that the prices are moving higher, and keep watching the price movements and can decide to  sell the entirety of the portfolio as you have a gain of 14,338 over the 30,000.00 you've already invested.

The following table gives you a real time example of Grain Elevators Plc if invested daily from the 4th of January 2016 todate.

As you can see the prices started moving up since the 21st Jan, at which point you could have decided to stop the regular topping up, and start watching the price movement on a daily basis. If you had done this then by yesterday you could have exited in full with a 5% gain which translates into an annualized gain of 86.55%.