๐ The Math of 'Watering Down'
Averaging down (or 'Mul-ta-gi' in Korean) works by adding more capital to lower your average cost per share. It allows you to reach a breakeven point faster when the price recovers.
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Risk Check
Caution: Only average down on assets with strong fundamentals. 'Throwing good money after bad' can increase losses.
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CFA's Note: The Harmonic Mean Advantage
Averaging down utilizes the Harmonic Mean. Buying fixed dollar amounts at lower prices buys you MORE shares than buying at higher prices. This lowers your average cost *faster* than the arithmetic average implies. It's a powerful statistical edge.