One of the great fallacies of investment. Statistically, if an investment halves in value then it has to double to get back to where it started – technically, therefore, an investment could be taking on twice as much risk on the way back. The only reason to ‘average down’ is if the investor believes strongly that the market (as a whole or specifically) has got an investment wrong. That is a big call as a market is what is says it is; it is a market of all investors’ opinions which means more investors have to change their minds than not for this to work. Just a thought, it may be instructive to look at the constituents of a major equity market index of, say, 20 years ago and count the number of companies that are no longer in it.
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