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Average Down Please

I believe in averaging down on my positions when it involves great companies. If a stock I’ve invested money in loses value, but the fundamentals remain the same, then as a long term investor this presents an opportunity to lower my overall cost basis on that stock.

The process of buying additional shares in a company at lower prices than you originally purchased. This brings the average price you’ve paid for all your shares down.

Let’s say shares of a company you own goes down in value suddenly. You can do one of three things:

One, you can sell your shares. This would be a good idea if the company is losing market share and losing money year after year. Two, you can sit still and not do anything and as we know Mr. Market can be emotional/unstable on any given day. You don’t have to add any shares or sell them just wait for the share price to balance back out.

Lastly, you can purchase more shares! If the market drops drastically, as it did in the beginning of 2016, most companies go down with it. It’s funny because I remember about four months ago I tried explaining this to my wife. At first she didn’t understand but eventually she got it!

For example Coca-Cola(KO) is sold all over the world and people drink it everyday. I honesty don’t care which way the stock goes as long as they consistently pay that dividend. (Hard to beat facts/50+ years of consecutive dividend raises) There are many reasons a stock may fall in value unfairly, but if it has great cash flow/reasonable debt there is nothing to worry about. So when the stock does fall in value let the party begin!

Live Long & Prosper

Full Disclosure: Long KO

 

 

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6 thoughts on “Average Down Please

  1. This is always the hardest thing to do. It goes against what the human psych wants you to do when Mr. Market decides to be super emotional but as dividend growth investors, we have to break that mold and go against it. After all, as dividend investors, our only worry should be whether or not they can continue to pay and raise their dividend payouts. The cheaper they are and the higher and more stable the payout of dividends, the better!

    Thanks for the article,

    -The Dividend Monster

  2. DM,

    No problem and yes still learning and growing! Mr. Market can be a crazy one as he was today, haha but yes like I said above as long as the cash flow is good and the stock is still paying a solid dividend, I could care less what the stock price is.

    Thanks again for stopping by and 2016 is looking to be an exciting one!

    DM

  3. Nice, I love averaging down! I’ve been averaging down on CLX right now with the slump. If you believe in a company then averaging down during down turns is a great idea.

  4. WS,

    Yes you and me both! So great putting more money to work and having it give you more back over the long term! I see you also brought more Realty Income(O) before it made a big jump. Nice

    Hopefully oil can make a comeback and 2016 turns out better than last year!

    DM

    1. Agree, I am still looking at what oil stocks fit into my portfolio / which companies I believe in. I am looking at SE but I can’t decide between SE and SEP. So much more research to do. lol

      Good luck averaging down!

  5. WS,
    Yea I think I went trigger happy a little bit too much when oil started to slide. Need to get back to the basics! haha I say go with SE and maybe wait until they drop another $1 or $2 also they just raised their dividend.

    Thanks again for stopping by and same to you!

    DM

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