Should You Average Down in Price?

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Should You Average Down in Price?

One of the worst mistakes I have seen some stockbrokers make is to be reluctant to call customers whose stocks are down in price from what they paid for them. That is the very time a client is unsure and may need some help and reassurance. To shirk duty in the difficult periods is not very professional and shows a lack of courage, or "guts," under pressure.

About the only sin that is worse is for brokers to take themselves offthe hook by advising customers to average down and buy more of the stock that already shows a loss. If a broker advised me to do this, I would close my account and look for a smarter broker.

Everyone loves to buy stocks; no one loves to sell stocks. As long as you hold a stock, you still have hope it might come back up at least enough to get you out even. Once you sell, you abandon all hope and accept the cold reality of defeat. Investors are always hoping rather than being realistic. You just can't afford to have a love affair with any stock.

Let's see where the real problem lies. Does the fact that you want a stock to go up so you can at least get out even have anything to do with the action of the stock market?
The stock market only obeys the law of supply and demand. So try to overcome this harmful emotion because it has absolutely nothing to do with the action of your stocks.

A great trader once said, "There are only two emotions in the market— hope and fear. The only problem is we hope when we should fear and we fear when we should hope."