On averaging down. As I say, it's best to have a plan in order to react to unforeseen events.
A harder way of looking at it is, if a person's XYZ stock drops, he/she has only two choice categories - sell all or sell some, or buy more. Remaining unchanged and transfixed for months/years is NOT an option. Essentially, you admit you're wrong and move on or believe you could be wrong and partial sell until you confirm, or else you reconfirm your initial reasonings and thus buy more.
If a person only has one stock and averages down on it, that becomes exceedingly dangerous. (As the stock gods showed Dr. P.) One "ought" to have many stocks and average down on several where there's some support that the ruling reasons for buying are still valid. In that way, when one is wrong (and one pays the price with a large, unrecoverable loss), the losses are made up for (I so hope) by the times when one reaps the outsize gains from increasing positions in the other stocks which subsequently recovered.
But of course, that's all jmo. And I certainly could be very wrong - especially if the entire market falls and doesn't recover or recovers slowly only over several years or decades.
Also, since I very much like normative approaches - i.e. what "should" be done, perhaps this leads me here to an opinion which is either too simplistic or too absolute (in addition to maybe also being wrong -g-) |
