Averaging is Not Fool Proof

Averaging down worked well for us with JCOM, but utilization of this technique is not a foolproof endeavor. The truth must be said, there have been situations where averaging down has cost us quite a bit of money. Averaging down requires confidence in your investment. Review the company's SEC filings, listen to any recorded conference calls available, review recent press releases, and reassess your commitment to the stock. Unexpected developments may sporadically change your outlook for a stock. If your stock posts disappointing earnings, for example, your initial assessment of the stock may be altered. This is a time to review your position. Averaging down is an opportunity to possibly increase your profits if you are still confident in your investment. The key to averaging down is numerous small purchases. If you make one big averaging down purchase you possibly will limit your ability to acquire additional shares at lower prices if the stock were to continue to drop.

There are people who say that averaging down is nothing more than throwing good money after bad money. In some cases this may perhaps be true. You must determine the point at which you will cut your losses and live to fight another day if you have averaged down on a losing proposition. It is our opinion that failure to consider the option of averaging down limits one's potential for additional profit, contrary to what some might say.

Beginner Money Investing Averaging Down Averaging in the Works Averaging is Not Fool Proof