Averaged Down
My Dumbest Investment

My dumbest investment was in a stock that sank. While I did manage to at least sell off about half my investment awhile back, I also averaged down at various times, both before and after that sale, adding to my shares. My total carnage appears to be about $15,000. Ugly. The value of my remaining stock is about $1,400, and it's hardly worth selling at this point. I think I'll just consider it an option on a miracle now. - J.D., Pittsburgh

The Fool Responds: Averaging down, where you buy more shares of a holding that's fallen in order to lower your cost basis, is sensible only when you've done your homework and are very confident in a rebound. When a stock falls sharply, there's often a good reason for it. Hang on only if the reason is temporary and not too worrisome. You might want to sell your remaining shares soon, though, for the tax loss (unless they're in a tax-advantaged account such as an IRA), and invest the proceeds in something that's more likely to grow.

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