re: Averaging Down/Averaging Up

The premise of dollar cost averaging is it generates better average transactional pricepoints over time than all-at-once trading. Investment psychology holds that averaging mitigates emotional trades. At least, that's the theory.

To me if one commits to buy preplanned positions with averaging, it's a six or one half dozen precept. However, if you never average up, you can hamstring upside potential with fractional positions in positive momentum holdings. Essentially it's reinserting emotion, and undercuts the dollar-cost thesis.

Fractioned positions d/t price-escalation-interrupted-purchasing happen to everyone. In March, MsNC put in a decent sized limit order for AMZN at 1695. We only ended up with 10 shares (We virtually never market order, but that's an occasion where I wish we had ). Amazon launched from there. We didn't bite the bullet and buy up. So now we're sitting on 10-15% of the gains we would have. It happens.

If you habitually do that though, IMO you'll underperform what you would if didn't average at all. But check it yourself. Setup a dummy portfolio. When you buy/sell in your real portfolio, decide in advance what size position you'd like to target at the end of averaging. 'Trade' it all at once in your dummy portfolio. Track comparisons over time. See for yourself.