Averaging Down Throwdown
It's not the kind of decision one likes to make. You buy a stock and now, through whatever circumstances, your prized holding is lower. Do you buy more? If the stock has lost half its value, you can triple your stake in the company by duplicating your original investment. Do you hold back or cash out entirely? The market told you that you were wrong the first time, is it time to cut your losses?
Rick Munarriz (TMF Edible) is all for averaging down under the proper circumstances. David Forrest (TMF Bogey) believes, you should never, ever, ever, ever average down. Get the feeling this is going to be an impassioned Duel? Let's go!
You Get to Vote!
After reading all of the arguments, cast your vote for the winner of the Duel. We'll tabulate results each week and revisit them from time to time to see whether you were right! As always, we invite you to join us in the Mutual Funds Message board to continue the duel.
[Any suggestions, comments, praise, or flames, please send them along to the Dueling Fools Team.]
| The
Bull... I will admit it, the very phrase "averaging down" sounds lame. Average is average. Down is, well, below whatever average is. This might seem like easy pickings for my fellow Fool, Bogey. Like Jim Jones, he might very well take me out with one punch. Averaging down! C'mon! Why would someone accentuate an investing mistake by adding to a sinking woof-woof stock? Continue... |
The
Bear... Never average down! You heard me. Don't ever average down. The process of buying a stock, watching it fall, and then throwing more money at it in the hopes that you'll either get back to even or make a bigger killing is one of the most misguided pieces of advice Wall Street has ever dispensed. I'm talking about when someone buys a stock, watches it fall 10 points (or however much it takes to make you violently ill), and then contemplates the absurd: "Shall I risk even more than I originally intended in a desperate attempt to lower my cost and save my butt?" The answer, over and over again, is a big, fat "NO." Continue... |
Results for last week's Mutual Fund Duel
| Answer | Percentage |
| I can't make up my mind | 3% |
| Rick Munarriz's Bull argument | 37% |
| Paul Larson's Bear argument | 38% |
| They were both excellent | 19% |
| They were both lame | 2% |