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Buying more shares after the price drops to lower your average cost per share.
Why It Matters
Averaging down can be brilliant or disastrous depending on why the stock fell. If it's a temporary dip in a great company, buying more at lower prices is smart - you're getting a bargain. But if the company is actually in trouble, you're throwing good money after bad. Never average down just because a stock is cheaper; average down because it's undervalued.
Key Points
- Only average down on companies you'd buy today at the current price
- Don't catch a falling knife - wait for signs of stabilization
- Have a plan: decide in advance how much more you're willing to invest
Related Terms
Common Questions
Buying more shares after the price drops to lower your average cost per share. Averaging down can be brilliant or disastrous depending on why the stock fell. If it's a temporary dip in a great company, buying more at lower prices is smart - you're getting a bargain.
Averaging down can be brilliant or disastrous depending on why the stock fell. If it's a temporary dip in a great company, buying more at lower prices is smart - you're getting a bargain. But if the company is actually in trouble, you're throwing good money after bad. Never average down just because a stock is cheaper; average down because it's undervalued.
Only average down on companies you'd buy today at the current price
Don't catch a falling knife - wait for signs of stabilization
Have a plan: decide in advance how much more you're willing to invest