Averaging - The purchase of additional shares in a company when the price has fallen.The point of averaging (also known as "Pound cost averaging") is that it lowers the average price of the shares you own in the company, as can be seen by the following example:Jan 1st: purchase of 1,000 shares at 150p (average cost of all shares owned on Jan 1st is 150p)Feb 1st: purchase of 1,000 shares at 100p (average cost of all shares owned on Feb 1st is 125p)The questionable thinking behind this is that, on February 1st, the owner of the shares will be making a profit on his investment if the share price rises above 125p - whereas prior to the second purchase the threshold was 150p.
Averaging : the purchase of additional shares in a company when the price has fallen.the point of averaging (also known as "pound cost averaging") is that it lowers the average price of the shares you own in the company, as can be seen by the following example:jan 1st: purchase of 1,000 shares at 150p (average cost of all shares owned on jan 1st is 150p)feb 1st: purchase of 1,000 shares at 100p (average cost of all shares owned on feb 1st is 125p)the questionable thinking behind this is that, on february 1st, the owner of the shares will be making a profit on his investment if the share price rises above 125p - whereas prior to the second purchase the threshold was 150p.
Averaging