Saturday, June 30, 2012

Should you practice Dollar Cost Averaging (DCA) Up?

Many people practice Dollar Cost Averaging (DCA) down, but do people practice averaging up?

To begin, DCA up is a practice to purchase share at a higher price than you already bought in order to achieve a larger position in your portfolio. Averaging up is a more sensitive issue which many people did not advocate because people simply doesn't like to pay for things which are higher than the price they bought earlier. Instead they want to wait till the time when the stock price goes below their buying price and in the face of doing so, they could be waiting for a possibly indefinite period of time, especially if the price they bought the stock was during recession period. So when is a good time you should enter again?

The answer could lie in whether you perceive the stock as undervalued or overvalued at the time when you are thinking of averaging up. If you think that the stock still has a margin of safety and more importantly still has legs to run up, then it would make sense to purchase more of the stock - even if that means you are averaging up. With that, the answer of averaging down or up is much of irrelevant in this case.

Saying so is easy but how many times have you done so? I've certainly average down myself more than I average up.

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