Doubling Down on a Falling Stock

Buying more shares makes sense when nothing about a company has changed except the price of its stock.

My friend Al just bought more shares of Westport Innovations (symbol WPRT), a stock in which he had an 85% loss. His logic? “For just a few thousand dollars, I can cut my cost basis in half.” Al was practicing a technique known as averaging down, in which an investor buys more shares after a price decline on the theory that if you like a stock at, say, $40, you’ll love it at $20.

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Andrew Feinberg
Contributing Columnist, Kiplinger's Personal Finance
Feinberg manages a New York City-based hedge fund called CJA Partners.