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There appear to be a number of arguments both for and against the practice of averaging down one’s stock position. Briefly, to average down means to purchase a second (third, fourth, etc.) position at a lower cost than what the initial position was purchased for. In other words, as the stock price goes lower you continue to buy more. In the mutual fund business they call it “dollar cost averaging.” The upshot is that at the end of the day, your “average cost” per unit is brought lower through the purchase of cheaper units as time goes on, which means that when (if) the units turn up again, your breakeven cost is lower than what it was when it was based only on your initial purchase price. The age old question is, Is it good to average down, or bad? It probably depends on your time frame. Shorter-term investors / traders would never average down – how can you have a stop-loss if you’re buying on the way down? This is akin to trying to “catch a falling knife,” or bottom picking, and certainly goes against the entire thesis of momentum traders. Longer term investors would disagree – they would argue that if you believe the company’s fundamentals are strong, then why wouldn’t you jump at the chance to buy the exact same future upside potential at a cheaper near-term price? Here to discuss the issue with respect to (TSX: V.VMI , Stock Forum ) are members of the Vault Bullboard, with posts below edited for clarity. deadder : We need to be patient. I have also lost a lot but there is something we don’t know on this. Joe has bought a load and now one of his VPs is buying. The lower this goes the more I buy. No CEO would buy 5.9 million shares on a company that is not worth it. As he has stated, they are trying to buy an advanced property which should be positive. Joe also mentioned we should hear something about the Goldcorp drilling shortly. They met with them a couple weeks ago and budgets were to be finalized before they can communicate anything however he did indicate they are still very interested in the property. … down 86% here but averaging down a lot lately. Fastlane2 : Why average down? What's the reason, and don't use the fact that Joe Horne is a major holder. There is no compelling reason to buy more of this company, when there are so many great juniors out there. The whole idea learned here from my own past practice is to diversify. I hope those of you who have invested here didn't bet the farm… As a shareholder you can't say you have a hunch or a gut feeling, because now you are gambling. I'm going to put these shares on the shelf as temporary retired money, because throwing more money at this company is totally insane. Stockgroup Media Inc., owners and operators of Stockhouse.ca/com, has established rules to ensure that there is no appearance of impropriety on the part of any Stockhouse writers who discuss or name individual public companies in the content published on the Stockhouse websites. The content of Stockhouse Editorial articles are the opinion of the writer and any reliance on the content of these articles shall be at your sole risk. Facts relied upon by our Editorial writers in arriving at their opinions are generally provided by the subject companies or gathered by our Editorial writers from other public and/or private sources. These facts may be in error and if so, the opinions of our Editorial writers may be materially different. Stockhouse Editorial writers may own stock of any company they cover, but at the bottom of the article or within the article they must clearly and prominently state their ownership position in the company. Stockhouse Editorial writers cannot solicit, accept, or agree to receive anything of value given or paid with the intent of influencing their editorial articles published on Stockhouse. Stockhouse Editorial writers are not permitted to write articles that attempt to influence or benefit persons connected to the writer such as family or friends, , except where disclosure is made in the same way as if the writer him/herself owns stock. Stockhouse notifies each Editorial writer about these rules but in case of a possible breach of our rules, we may not be in a position to find out or investigate the facts. We rely on the integrity of our writers to ensure that our rules are followed. This is cache, read story here
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