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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host
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To: Investor2 who wrote (4402)3/31/1998 11:20:00 PM
From: Ken Brown  Read Replies (2) of 42834
 
>>Dollar cost averaging does not work if the long term direction of a stock (or market) is down.<<

That depends on your definition of "work". True, it doesn't give you a profit in a down market - but it does lower your loss. The reason is obvious, so I won't bother with an example.

I think DCA also works in up markets, because of people's tendency (as Bob has said so often lately) to want to "lump sum", the higher the market goes. DCA prevents one from dumping all one's money at Dow 9000, just as the market is about to correct 12% ... thereby causing that same poor soul to take *out* all that money, at the bottom of the correction.

Ken
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