Why "average down" comes naturally to the average Joe?

[crgarcia]

Quote from turkeyneck:

You tell them to "average up" or "cut loss" and they think you are a loonie. Any idea?

Because averaging down always works if:

A. You wait long enough.

B. You don't overleverage.

 

[The Voyager]

Quote from crgarcia:

Because averaging down always works if:

A. You wait long enough.

B. You don't overleverage.

Define long enough.

There are far better ways to trade with infinitely less risk. Funny because in the end it's all about the risk.

TV

 

[MaxxHeatt]

Quote from crgarcia:

Because averaging down always works if:

A. You wait long enough.

B. You don't overleverage.

C. Have unlimited capital.

 

[smilingsynic]

Quote from crgarcia:

Because averaging down always works if:

A. You wait long enough.

B. You don't overleverage.

Not on stocks.

Stocks go to zero and stop trading.

Then what?

On ETFS like SPY and QQQQ, and even more specialized ETFS like XLF and XHB, sure. Now.

Then again, those who averaged down on the QQQQ in June 2000 are still waiting. They may be waiting for 10, 20, or more years.

The question in the end is not if averaging down 'works", but rather what is best in terms of risk/reward over time.

 

[mike007]

Why not just cut a loss quickly when it is small and then look to re-enter at a lower price?

 

[mike007]

Quote from crgarcia:

Because averaging down always works if:

A. You wait long enough.

B. You don't overleverage.

Tell the share holders of Lehman that.

 

[crgarcia]

Quote from MaxxHeatt:

C. Have unlimited capital.

Most investors fund their retirement accounts, saving as they go; so they may keep contributing for years (and they should).