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| Shares | Price (₹) | Total (₹) |
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Stock averaging (or averaging down) is an investment strategy where you purchase additional shares of a stock you already own at a lower price. This brings down the average cost per share of your position.
This strategy can be effective for long-term investors who believe in a company's fundamentals but want to reduce their average entry price during market downturns.
However, it's important to be cautious with averaging down - if a stock is declining due to fundamental problems with the company, you might be throwing good money after bad.
First purchase: 10 shares @ ₹100 = ₹1,000
Second purchase: 10 shares @ ₹80 = ₹800
Total investment: ₹1,800 for 20 shares
Average price: ₹90 per share
If the stock price recovers to ₹95, you would be in profit even though your first purchase is still at a loss.