Averaging down in price rather than averaging up when buying.
If you buy a stock at $40, then buy more at $30 and average out your cost at $35, you are following up your losers and throwing good money after bad. This amateur strategy can produce serious losses and weigh down your portfolio with a few big losers. Again, this sounds like common sense, but most investors don’t recognize it. A stock that is moving down is moving down for a reason. Either the company is sound and the broad market is in a downtrend or the stock itself is not what you thought it was. Either way, you need to protect yourself and look to cut your losses, not buy more. Avoid the big disasters in your portfolio. That is how you make consistent results.
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