November 27, 2008
Stock option trading - In both these hypothetical cases it was assumed that prices ended up in very much the same spot where they started.
What happens if prices are not quite so accommodating? If the stock or stocks selected by the dollar-averager turn sour, and never recover to the starting point, is it still possible to salvage any of the investment? Reference was made in the introduction to the oft-voiced theory that "any plan is better than no plan." In dollar averaging, this may be literally true, and the hypothetical case history presented in Table 2 is a good demonstration of this. It would be difficult to find a stock which was so highly regarded prior to the 1929 crash and at the same time so totally lacking in true investment merit as Radio Corporation of America. Manipulated by a highly skilled and superbly organized pool operation, the stock, which had never paid a dividend, was pushed to a mid-1929 high of over 500.
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