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On the subject of averaging down

Tony
in Off-Topic
Some time ago, I was into collecting guru's rules for trading. I reviewed the lists to see what they had to say about averaging down.

Linda Bradford Raschke; "Never add to a losing position."

Dennis Gartman: "Never, under any circumstance add to a losing position...ever! Nothing more need be said; to do otherwise will eventually and absolutely lead to ruin!"

Richard Rhodes: "Never, ever under any condition, add to a losing trade or 'average' into a position. If you are buying, then each new buy price must be higher than the previous buy price. If you are selling, then each new selling price must be lower. This rule is to be adhered to without question."

Comments

  • JunksterJunkster
    edited October 2014
    And don't forget about Paul Tudor Jones and his maxim that "only losers average losers". Problem is, all the people mentioned are traders and not investors. I was taught from Day One as a teenager (Nicolas Darvas) to NEVER average down.
  • paule
    What about the case where you dollar cost average into a fund monthly long term. Are there any rules for when one should stop?
  • JunksterJunkster
    paule said:

    What about the case where you dollar cost average into a fund monthly long term. Are there any rules for when one should stop?

    paule, you are an investor not a trader. Absolutely nothing wrong with what you are doing, especially if it is an index fund.
  • hank
    edited October 2014
    Re: "If you are buying, then each new buy price must be higher than the previous buy price. If you are selling, then each new selling price must be lower."

    This sounds a lot like speculating on market momentum. I surely wouldn't shop for a new car or house by looking only for higher and higher prices. And, I wouldn't sell items hoping to find only folks willing to pay me less and less for them. I can see how a trader glued to his day-charts and keyboard could make a mighty sum doing this. But, I don't see how it's a viable long-range investment strategy for most investors.

  • hank
    j
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