Is Averaging Down a good strategy to use when you have to?

Question

If fundamentally, nothing has changed with a company is it a good idea? If yes, how much percent change in price or what other metric do you use as a guideline... and increase the position by how much? Jim Cramer recommends taking quarter positions at a time (or even 50% when a stock has really pulled back)

Update:

aclau85 - see the definition here:

http://www.investopedia.com/terms/a/averagedown.as...

vinay_talks · Accepted Answer

If your sure about the fundamentals of the stock then its adviceable to take anywhere between 30-45% positions in a pullback as this will bring down ur average, Although i have also sen people taking 100% or more to get to a good average if the stock has taken lot of beating... in all my advice would be 30-40% but dont ignore the market reality before to take such a call

Anonymous · Answer

The percentage play is to cut your losses, sell, and buy something that is going up. Markets can be wrong, but they are right more often than the average investor is. Markets can also stay wrong longer than you can remain solvent. Often, a declining stock price indicates a company may have Enronitis or some similar affliction. But it's your money, you choose.

Sassy1 · Answer

If the fundamentals are sound then i would advise you to increase the weighting of the stock in your portfolio.  Sometimes a company can be undervalued and that in my estimation, is the best time to get in there and buy up a bunch of cheap stock.

aclau85 · Answer

wow.. that's a really tough question..
But, I dont really understand what you right- but averaging down (you mean divide your investments) is sure a good way to do while investing.. That's investing in a portfolio of assets.

Yupi Yupi · Answer

Go to www.basetrader.com excellent advice

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Is Averaging Down a good strategy to use when you have to?

5 Answers