What does it mean to "average down" on a stock?
Buying more of a stock after it falls, which lowers your average cost per share. It works if the business is fine and the price is temporarily low, and compounds the damage if the business is failing.
Averaging down is buying more shares of something you already own after the price has dropped. Buy 10 shares at $100, then 10 more at $60, and your average cost is $80. The stock now only needs to get back to $80, not $100, for you to break even.
When it works, it works well. If a good company falls with the whole market or on a temporary scare, buying more at the lower price is exactly what a long-term investor should want to do. Dollar-cost averaging into an index fund is averaging down, systematically, every time the market dips.
When it fails, it fails hard. If the price fell because the business is deteriorating, adding more just increases your exposure to a company on its way down. Plenty of investors turned a small loss into a large one by "averaging down" on a stock that kept falling for years. The math that made it feel safe was the thing that trapped them.
The test before adding: has anything about the business changed, or only the price? If only the price, averaging down is reasonable. If the business has changed, the honest move may be to sell, not buy.
Informational only, not financial advice. Updated September 4, 2026.
Get the free market brief
Top stories and analysis, summarized. No spam, unsubscribe anytime.