HOW TO AVERAGE DOWN FOR DUMMIES

This stock market for dummies lesson is about averaging down.

If a stock you have invested in falls in price you have a few options...
You can panic and sell out, hold onto your investment waiting for the stock to rebound, or buy more stock at the now lower prices. The latter is a strategy known as "Averaging Down" because it will bring the average price of your investment down.

It works like this: you buy 100 shares at $100 a share, the price falls to $80 a share and you then buy another 1000 shares which brings your average cost down to $90.

Is this a good strategy?...
It's a bad strategy if the price has dropped because the fundamentals of the company have changed to a significant degree and the stock is now unattractively priced or it was simply a bad investment in the first place.

But if your initial investment was based on sound research and understanding of the company and the fundamentals of the company haven't significantly changed for the worse then it is the best strategy to take. Because if it was good at $100 it's great at $90.