Over a year ago, I began purchasing a certain stock before the market took a dive. My initial purchase was in the low 50's with trades going into the high teens. By this time last year, I had purchased 160 shares at an average price of $23.00 per share. At current prices, those shares are down 67%. Despite a horrific loss on my initial investment, I am only down 24% on my total investment in the firm.
How? I continued to buy shares even as the price fell. All in, I own my shares at a average price of $10 per share.
Although the stock is still in the single digits (it is a financial services company), the recent bounce back means erasing my losses in 2009 is actually possible.
Why did the strategy work? I believed the company was fundamentally sound and would recover if the economy stabilized. As a result, buying the stock at $4 per share seemed like a great opportunity.