5 Tips to Survive Economic Turmoil (part 5/5)
This current economic turmoil brings us to the fifth and final segment of our special report, “5 Tips to Surviving Economic Turmoil.”
In this part, we’ll discuss averaging down, and why to be cautious of it.
BE WARY OF AVERAGING DOWN
Averaging Down means buying more shares of a stock you already own, if the price has dropped since you originally bought it. This tactic lowers your average price paid per share, but increases your exposure.
For example, you buy 2,000 shares at $2.00, and weeks later the stock drops to $1.00. If you buy another 2,000 shares at $1.00, your average price per share for the 4,000 units is now $1.50.
In other words, if the shares make it back to $1.50, you are breaking even overall. (However, you now have an additional $2,000 invested.)
I have personally seen people average all the way down, with three or four or five new buy orders over months or years. They lost their shirts on stocks like Nortel and some of the Internet high-flyers.
Most times investors average down to make up for a bad trading decision. This can get pretty ugly when a stock is nose-diving towards zero, as they throw good money after bad.
I don’t support the concept of Averaging Down. When I trade, I’m much more likely to ‘Average Up.’ I’ll acquire more shares as the stock price climbs, and the momentum of the company rises. The increasing share price is a confirmation of the research success, and the company’s progress, rather than a profit-taking opportunity.
This concludes our five tips, and I truly hope they help you survive, and maybe even profit, from the recent economic turmoil. Keep moving forward, and as always, keep these five tips in mind.
Hopefully applying some or all of the concepts detailed here will benefit your trading results. You can learn even more about all the ideas mentioned by visiting my free online information about hot penny stocks.
As always, we greatly appreciate your business, and remain committed to bringing you the absolute best in penny stock picks.
Peter Leeds, The Penny Stock Professional