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TIP606: Multi-Bagger First Principles w/ Ian Cassel
We Study Billionaires - The Investor’s Podcast Network
Averaging Down as Value Investors and When to Do It
Averaging down as a value investor can be risky and should only be done under specific conditions. It is crucial to avoid averaging down in highly levered companies, businesses with obsolescence risk, unprofitable businesses, and underperforming businesses after a bad quarter. Instead, successful averaging down should occur when the business is accelerating, profitable without the need for fundraising, has sustainable growth potential, and carries low debt. Averaging down should only be considered when the stock price is significantly undervalued compared to the business's valuation and trajectory, particularly when a business is accelerating and the stock price is down. A major pitfall to avoid is averaging down in unprofitable situations where the company might dilute shareholders through fundraising, leading to a permanent loss of capital.
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