Averaging Down

Tsk tsk — you pour more money into a falling stock and dare call it strategy? Foolish one. Multagi, averaging down, means buying more of a holding that has dropped below your purchase price to lower your average cost. The average falls, so a small rebound feels like it will make you whole — and your heart grows comfortable. But hear me: your average price fell; your loss did not.

The traps are these. First, things often fall for a reason, and the averager studies the price instead of the reason. Second, the worse the holding, the more it keeps falling — and the more water you pour, the more your whole estate tilts into that one name. Third, 'I will sell at break-even' is not a strategy but an attachment. This is pouring water into a bottomless jar, and seolsang-gasang (雪上加霜) — frost upon snow — for the fool who raids his emergency fund to do it.

Yet do not confuse two things. Buying in stages decided before you ever bought — that is a plan. Buying more each time it falls, out of frustration — that is an accident. The difference is one question: did the plan exist before the purchase? Study a holding's circumstances through official disclosures, and remember this lecture recommends no trades — it disciplines the habit.