September 13, 2008
Option trading strategy – 52 shares, which cost him $15,000 and now have a market value of $11,372.
- But his average cost is only about a point and a half above the current market price of 5, so that a rise of that amount will be enough to give him a profit if he wishes to sell out. It is interesting to note that the dollar averaging principle automatically insures that most of the stock held will have been bought at bargain levels. Without having to give any thought to the matter at all, the investor bought relatively few shares at the high levels of 1928 and 1929, and began to reduce his share purchases when the stock began its rise during the forties and fifties. This built-in caution at high prices is more or less typical of formula plans in general, but is especially notable in dollar averaging, and it works completely automatically. To see the effectiveness of this principle, note that the investor picked up more shares in the bargain year of 1942 alone than he did during the entire last decade of the plan”an example of shrewd investing that many a professional might envy!
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