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Averaging down can be an effecive stock market investing strategy when you believe the price will move higher.
[100 Shares X $50.00]
[100 Shares X $10.00]
[100 Shares + 100 Shares]
[$5,000.00 + $1,000.00]
[$5,000.00 / 100 Shares]
[$6,000.00 / 200 Shares]
This changes the cost basis from $50.00 to $30.00 which is a difference $20.00 or 40.00%.
If the stock price recovers to the 1st purchase price of $50.00, the total value of the investment will become $10,000.00 from an initial investment of $6,000.00.
This would be a gain of $4,000.00 or 66.67%.