Average Down

A strategy to lower the average price paid for a company's shares by purchasing additional units of a stock already held by an investor after the price has dropped.

For example: Investor A holds 10 shares of ABC stock that he purchased at $100 per share (for a total of $1,000). Following a market price drop to $80 per share, Investor A purchases 10 additional shares of ABC (for a total of $800). This results in an average purchase price of ($1,000 + $800)/20 shares = $90 per share, lowering the total cost per share by $10 ($100 - $90 = $10).