There is no way to prove averaging down will always be a good or bad move really...
Cafa, if you plug in the right set of numbers, averaging down works... If you plug in another set of numbers, it does not.
Truth is, if the stock never bounces back high enough, and you do not manage to time the purchases of averaging down well enough, it causes a larger loss than simply riding the price down holding the shares you already had.
The real risk of averaging down is that you might decide to do it with every stock you have that is losing you money.... If you do not set a limit of when to stop the average down, then you will one day find a stock that never bounces back, and you are toast.
Kind of like the stop loss debate.... You can win doing this or lose, it depends on how you manage your money and how lthe share price reacts.
LYC Price at posting:
56.5¢ Sentiment: None Disclosure: Held
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