Don't know why, but recently I've seen quite a few articles about the so-called dollar-cost averaging (DCA) strategy. Some even went as far as to declare this strategy being "the best" for newbie investors. Well, personally I believe that there's no a "one-fits-all" "the best" strategy in the money game, and even if it does exist, it's not DCA. Of course, I may be wrong, but nevertheless, I'd want to make my note about DCA, as long as it looks like a trendy topic nowadays.

That's what Investopedia says about the DCA:

Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals; in effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices. Dollar-cost averaging is also known as the constant dollar plan.

The DCA does reduce the impact of volatility on the overall purchase. Just do not take averaging down for the DCA.

Averaging down is when the price of an asset keeps going down and every next purchase is made at a lower price, thus lowering the average buy price. And when the asset eventually goes up -- the lower was the average buy price, the higher will be the profits. The only problem here is that sometimes the price of an asset may eventually come to zero...

Some more of Investopedia:

Dollar-cost averaging does improve the performance of an investment over time, but only if the investment increases in price. The strategy cannot protect the investor against the risk of declining market prices. The general idea of the strategy assumes that prices will, eventually, always rise. Using this strategy on an individual stock without knowing about the company's details could prove dangerous because the strategy may encourage an investor to continue buying more stock at a time when they should simply exit the position.

In other words, DCA must be used when and only when there is a good reason to believe that the price of the shit you dollar-cost averaging into will go up at the end of the day. And this good reason is something more than simple wishful thinking. For example, there's a good reason to believe that S&P or DJA will eventually go up (even though it may take several decades like it was during the Great Depression) -- simply because the US economy still keeps going on and if it starts heading to zero, you will face real-life problems more serious than playing with your investments.

Some may be fooled by the statement that "in the long run the stocks eventually go up". Even putting aside the fact that "in the long run" we all are pretty much dead, this statement might be (partially) true for the stocks as a whole (i.e. for stock indexes), it's simply not true for an individual stock (or for a crypto-coin, for that matter).

Here I would love to quote my favorite Mr. J. Livermore:

It is foolhardy to make a second trade if your first trade shows you a loss. Never average losses. Let that thought be written indelibly upon your mind.

Unfortunately, there is no simple rule to tell when the DCA ends and averaging down starts... Sometimes you can DCA into something only to learn that it was averaging down.

Of course, sometimes averaging down makes sense. For example, if you want to be a shareholder with a vote in a company's affairs. But people who go for such things generally know quite well what they're doing, why and when.

For the rest I'd love to quote my favorite Mr. Livermore once again:

Let us suppose you want to buy 500 shares of a stock. Start by buying 100 shares. Then if the market advances buy another 100 shares and so on. But each succeeding purchase must be at a higher price than the previous one. ... By following this rule you will come nearer being on the right side than by any other method with which I am familiar. The reason for this procedure is that your trades have at all times shown you a profit. The fact that your trades do show you a profit is proof you are right.

Of course, Mr. Livermore's strategy is no 100% guarantee too, but it does can save more money than a DCA that suddenly became averaging down.

Anyway, no strategy can help someone who's going to trade or invest in between jerking off, especially when putting more time and effort into jerking than into investing. And the best advice for a novice investor is to end being novice as soon as possible.

Disclaimer: Blah.

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