recession in america There is a big drop in the global stock market due to the threat of the pandemic and the increasing geo-political tensions around the world. The Indian stock market is also not untouched by this. The Indian market has also seen a big drop in the last three days and lakhs of crores of rupees of investors have been lost. However, whenever there is a big drop in the market, there is a golden opportunity to do ‘averaging’ in the stock. Averaging means adding the same stock to your portfolio by buying it at a lower price. Averaging helps investors reduce the total cost of the shares. This helps them make good profits quickly when the stock returns to growth. Let us know when averaging should be done and what things should be kept in mind.
Do averaging only in the stocks of good companies
Market experts say that when the market falls, all stocks fall but when there is a boom, not all stocks move. Therefore, while averaging, you should know which are the good and which are the bad stocks in your portfolio. If you do averaging in weak stocks, your money will get stuck. Therefore, while averaging, definitely look at the company’s balance sheet, business model, valuation and outlook. It is not that the stock is expensive even at the price at which you are averaging. If this happens, then that stock can fall further. That is, your loss will increase. Therefore, it is beneficial to do averaging only after looking at the fundamentals of the company.
There is a lot of risk in averaging
Averaging can be risky because a drop in the stock price can signal developments within the company that are not immediately obvious. If the market has correctly factored in the negative developments, buying additional shares could result in greater losses. Sometimes stocks rise to excessive prices, and when they correct by 20 or 30 percent, they may seem cheap to you, but their price may be expensive based on earnings. Therefore, one should be very careful while averaging.
Latest Business News
