# Is It Right to Average Down When the Price Falls?

In investing, many people follow a simple investment approach: buy more when the price drops, and sell when it rises. They believe this strategy is foolproof because averaging down lowers their average cost, and after lowering the average cost each time, they don't need the price to return to the original level to break even—theoretically, as long as they keep buying on dips and the price rebounds even slightly, they can break even or make a profit, then sell and repeat the cycle.

This method is somewhat similar to the martingale strategy used in gambling. However, this strategy is not a "guaranteed winning method" because the key lies in selecting an asset that "will bounce back strongly when it rebounds." If you pick the wrong asset, then your averaging down is wrong—the more times you average down, the more wrong you become.

Can averaging down really lower your average cost? Perhaps we shouldn't look at it that way, because "lowering average cost" actually involves two actions: 1. You buy the asset at a new cost; 2. You combine the new cost with the old one and calculate an average cost. Only the first action actually affects your profit and loss, while the second action is merely a change in calculation perspective—even if you don't change it, the result won't be affected. Therefore, we only need to focus on the first action.

If after you average down, the asset continues to fall, then from the perspective of "percentage gain needed to break even," even if it keeps falling, averaging down gets you closer to breakeven than not averaging down, right? That's why you think averaging down must be correct. But as we just said, the second action is something we shouldn't focus on—it doesn't truly affect your profit and loss. When the price continues to fall, your first investment will continue to lose money regardless of whether you average down subsequently, correct? Therefore, we only need to look at the money you add through averaging down. You'll find that as long as the price keeps falling, that money is also losing value. So even though the percentage gain needed to break even shrinks, your capital has genuinely lost more through this averaging down trade—the loss on your first investment has its own trajectory unaffected by whether there's a second purchase, but you've plainly added additional losses to the second batch of money.

Therefore, the perspective of "averaging down to lower costs" is flawed. The correct way to judge should be: "At the current price, based on my current view of this asset, should I make an independent buy-sell decision—I do it if willing, I don't if unwilling," rather than "as long as the current price is lower than my previous cost, I must buy."

I know many people's views on assets are heavily influenced by online opinions, those around them, and whether the price is on a continuous uptrend or downtrend—this is incorrect. Because the money you make is "when the market is wrong." If your views always follow "the current market's views," then the market will always be right for you. If the market is always right, how can you trade against it? If your relationship with the market isn't contrarian trading, where does your profit come from?

So buying an asset can't be because it's good (good assets don't necessarily rise), but rather because you perceive "the market is wrong"—either it's good but the market thinks it's not, or the market lacks long-term patience with its capital; or the market also thinks it's good, but you believe it's far better than what the market thinks.

When the price continues to fall, your view on the asset's intrinsic value must remain unchanged. At this point, the price falling means the gap between current price and its "true value" is widening—this should be your reason to buy now, not because you bought too high or too low last time, or because you want to lower your average cost so it looks closer to breakeven.

This is what I mean by "investing on the right path." If you're on the wrong path, no matter how brilliant the strategies you develop, it's just putting ornaments on garbage. After 10 or 20 years of investing, your skills won't improve at all. But once you're on the right path and understand the correct concepts, you don't need to be particularly smart—success is just a matter of time. #Gate13周年全球庆典