Listen to a Business English Dialogue about Average down
George: Hi Eden, have you ever heard of the term “average down” in investing?
Eden: Yes, I have. “Average down” refers to the strategy of buying more of a stock at a lower price to reduce the average cost per share of an investment.
George: That’s right. It’s a technique used by investors to potentially increase profits when they believe in the long-term prospects of a stock. How do you think investors decide when to average down?
Eden: Investors may choose to average down when they believe the stock’s current price is lower than its intrinsic value or when they have confidence in the company’s fundamentals despite short-term market fluctuations.
George: Exactly. It’s important for investors to conduct thorough research and analysis before deciding to average down on a stock. Have you ever employed the average down strategy in your investments?
Eden: Yes, I have. I’ve used the average down strategy when I believed in the long-term potential of a company but wanted to reduce my overall cost basis in the stock.
George: That’s smart. Averaging down can help investors improve their overall returns over time if the stock’s price eventually recovers. How do you think averaging down differs from other investment strategies?
Eden: Averaging down differs from other strategies such as dollar-cost averaging, where investors regularly invest a fixed amount over time regardless of the stock’s price movements.
George: Right. Averaging down involves actively adjusting your investment position based on changes in the stock’s price and your assessment of its value. How do you think investors manage the risks associated with averaging down?
Eden: Investors can manage the risks of averaging down by setting strict criteria for when to average down, diversifying their investments, and maintaining a long-term perspective.
George: Absolutely. It’s crucial for investors to carefully consider their risk tolerance and investment objectives when employing the average down strategy. Thanks for the insightful conversation, Eden.