Average Down: The Right Strategy To Improve The Value Of Stock Investment
The longer the company will fall, and it is likely to be followed by a decline in its share price, so you will also lose more. If the company selected is a company with strong fundamentals, then automatically you have reduced the risk of loss.
For most people, the term Average Down may still sound unfamiliar, and not many people do not understand its meaning. But for people who are used to playing in the world of stock investment, the term Average Down has become familiar, especially when it is in asymmetric investing. They have prepared various strategies including Average Down when facing unstable economic conditions that affect the stock price on the trading floor Investructor.
Average Down is an investment strategy by making purchases in stages when the stock price on a stock exchange is experiencing a decline. This strategy applies not only to the purchase of shares but also to the purchase of mutual funds.
The advantage of this strategy is that the value of your investment will not fall too deep like the current market conditions, because the value of the investment is offset by the addition of the amount of investment at low prices. So that when market conditions have recovered, your return will be maximal.
This strategy is very helpful for you in increasing investment by getting an average NAV and a maximum investment return. The assumption is that with a lower purchase price, the margin of safety will increase, so the risk of loss will be even lower. So the basic assumption is to reduce the risk of loss through a decrease in the purchase price, that’s the strength of the Average Down strategy
If the stock continues to fall after you have done Average Down, then your losses can also increase, if that your perspective is defensive. If your perspective is optimistic, of course, this weakness opens another opportunity, namely the entrance to a lower price, so that it will further reduce the purchase price. Many people say the Average Down strategy is perfect for long-term investments, of course using the right strategy.
The important thing to know so that the Average down strategy is successful is the selection of the company. The company you choose must be the right company, which is a company with good fundamentals that has the opportunity to grow very much and is stable, and also the price is still below the fair price. Do not let you do an Average Down on a company that is losing money. When you do that, you are like following an endless defeat. The longer the company will fall, and it is likely to be followed by a decline in its share price, so you will also lose more. If the company selected is a company with strong fundamentals, then automatically you have reduced the risk of loss.