First of all, I think you need to have a lot of money to "average" down. So like the other person above said, if you had an allocation percentage to shares of a certain percent of your portfolio and to the particular subclass, you would end up overweight in a falling stock if you keep pumping money in.
Sure, if you are skilled and have the best charting tools and know how to use them, then that can be justified. but for novice investors, dollar cost averaging incredibly risk. I know we are talking about direct share ownership here but if you talk investment funds, it is just a term fund managers use to keep your money in the funds they manage so they can earn fees. I can quote a list of managed funds who were the "darlings' at the time a decade or more ago and featured in money magazine etc whose price has fallen by a half and if you had dollar cost averaged, you would be sitting on a massive unrealised loss.
So to put it simply, dollar cost averaging is a bad idea for inexperienced novices unless you have too much money to play with.
Also, transaction costs do add up in this strategy.
I would like to see someone put a chart up for an investment bank that traded up to 90 bucks a share just before their decline and see if it could have been predicted via charts (the stock is now worth approx $24). If you averaged down, I would see you now having unrealised losses bigger than my current super balance lol and as the famous economist JM Keynes said, in the long run we are all dead so there is next to no chance of that particular stock getting back to 90 bucks. That was a bubble imo.
Back in that period, we all thought Babcock & Brown could be the next Macquarie Bank but if you have averaged down with that one, we all know what the result would be lol They were both considered blue chip so there is no difference whether the stock is blue chip or not when you dollar cost average because poorly managed debt can do disastrous things to any company, but then you also need to learn to read financial statements or you would not understand a company.
Being not afraid to sell when you should is one of the key fundamentals of investing to beat the market. Better lose $2000 bucks than to lose 20,000 and then assess at the bottom whether to get back in again with a clear mind. While gut instinct overwhelms most when a position goes against them and the money involved is large, we need to think logically (or just ask your partner what she thinks about it using a roundabout way).
Preservation of capital should be first and foremost for anyone planning for their future as opposed go speculating or gambling on the stockmarket for quick cash (especially if you are using your SMSF money lol) Better to take the money you save from cutting your unrealised losses and put it to some of the popular super cheap resources stocks and you can make big $$$ in an equally short timeframe. (cheap to me is under $1 per share)
IMO, if you think or believe strongly the stock is going to fall further for a while (after detailed research eg looking at a chart and other evidence), get out of the stock, then sell CFDs on the stock, if cfd exists for it (but obviously don't put your house on it) then exit out at the bottom, then buy back into the actual stock on the up. This strategy will easily recoup any initial losses due to leverage.
Sure, if you are skilled and have the best charting tools and know how to use them, then that can be justified. but for novice investors, dollar cost averaging incredibly risk. I know we are talking about direct share ownership here but if you talk investment funds, it is just a term fund managers use to keep your money in the funds they manage so they can earn fees. I can quote a list of managed funds who were the "darlings' at the time a decade or more ago and featured in money magazine etc whose price has fallen by a half and if you had dollar cost averaged, you would be sitting on a massive unrealised loss.
So to put it simply, dollar cost averaging is a bad idea for inexperienced novices unless you have too much money to play with.
Also, transaction costs do add up in this strategy.
I would like to see someone put a chart up for an investment bank that traded up to 90 bucks a share just before their decline and see if it could have been predicted via charts (the stock is now worth approx $24). If you averaged down, I would see you now having unrealised losses bigger than my current super balance lol and as the famous economist JM Keynes said, in the long run we are all dead so there is next to no chance of that particular stock getting back to 90 bucks. That was a bubble imo.
Back in that period, we all thought Babcock & Brown could be the next Macquarie Bank but if you have averaged down with that one, we all know what the result would be lol They were both considered blue chip so there is no difference whether the stock is blue chip or not when you dollar cost average because poorly managed debt can do disastrous things to any company, but then you also need to learn to read financial statements or you would not understand a company.
Being not afraid to sell when you should is one of the key fundamentals of investing to beat the market. Better lose $2000 bucks than to lose 20,000 and then assess at the bottom whether to get back in again with a clear mind. While gut instinct overwhelms most when a position goes against them and the money involved is large, we need to think logically (or just ask your partner what she thinks about it using a roundabout way).
Preservation of capital should be first and foremost for anyone planning for their future as opposed go speculating or gambling on the stockmarket for quick cash (especially if you are using your SMSF money lol) Better to take the money you save from cutting your unrealised losses and put it to some of the popular super cheap resources stocks and you can make big $$$ in an equally short timeframe. (cheap to me is under $1 per share)
IMO, if you think or believe strongly the stock is going to fall further for a while (after detailed research eg looking at a chart and other evidence), get out of the stock, then sell CFDs on the stock, if cfd exists for it (but obviously don't put your house on it) then exit out at the bottom, then buy back into the actual stock on the up. This strategy will easily recoup any initial losses due to leverage.