Average Down

The act of buying shares of a stock you own at a lower price(due to the current price being lower than what you originally paid for the stock)

Averaging down gives an investor a lower average price on his shares. Famous traders like Jesse Livermore dislike averaging down because you are stuck with a losing trade and the stock could go down to zero, which means your whole investment is gone. However, other investors like Peter Lynch advocate averaging down because “If a stock is a good buy at X, then it becomes a better buy at half of X.” Therefore, only average down when it meets your objectives and investment strategy. It is generally better to average down with stocks that have strong fundamentals(strong earnings, fair valuation, established business) than speculative issues, though stocks with strong fundamentals may be enduring a deterioration in fundamentals as the stock price falls. There is no perfect one-size-fits-all answer and the investor must decide for himself whether averaging down is suitable.

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