deadpoet wrote:Is averaging down a good strategy, or is it simply a case of throwing good money after bad?
For argument's sake, let's say someone bought NBK at 8 bob but now its down to 5.50. Would that person be right in purchasing more at 5.50 to lower the average buying price to around 6.50? This way, he or she can at least get out easily if and when the price rebounds to, say, 7 bob.
Let's not discuss company fundamentals in the example above. Assume a speculative trader.
Has anyone managed to average down successfully?
- Averaging down is a bad idea for speculators/traders, because they ignore fundamentals. Therefore, there is the risk of sinking money into a black hole.
- Averaging down is good for investors because they use fundamentals and have a long/medium term investment horizon. This gives their investments enough time to bottom and turn around (pricewise).
Therefore, in the above case, it is a bad idea for the "trader/speculator" to average down.
Personally, I prefer "investing" in stocks (because fundamental analysis is possible), and "speculating" on commodities (because there are no fundamentals, just demand and supply forces).
A successful man is not he who gets the best, it is he who makes the best from what he gets.