Does Cost Averaging Work?

It did before. I bought a hundred shares of SMPH at P12.25. Added 300 shares at P10.25. Then sold all 400 shares at P12.25. 11% profit in less than three months. And the price never went up again. I felt so good I thought I was so great at investing.

But now I am back to reality. My lack of technical & fundamental know-how on equity investing has shown. Amidst the US Economic Crisis and the Philippines’ rice crisis and political turmoil, my equity investment portfolio has taken a dip. 20+% dip. Yes, 20% paper loss.

Losing 20% of the value your money in stocks is scary. Which brings me to this question, does cost averaging really work? I tried to do the trick with my MBT and GMA7 shares but to no avail.

Cost Averaging is a technique of buying a fixed amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.

There it is. I guess it won’t work if I can’t buy at a regular schedule, can’t buy more share when prices are low, because I ain’t got enough money to do so. But I’m about to finish two credit card installments so it’s gonna help increase my cash flow a little bit. I hope I could use them for cost averaging purposes on my stock investments soon. With regards to cost averaging, I really can’t tell if it works. But I’ll let you know soon..