Average down or double down

When you lose 25% on a stock, do you want to buy more or even buy at the same initial dollar amount (i.e. double down)? Most likely the advice is not but there are some exceptions. Find out why it is down and is there any reason to recover. Here are some of my actual experience and my reasons. 

* I would average down on CAT, or even double down on CAT. I just bought the company and it lost 10%. CAT does not have a good audience of shorters. It will recover when the economy improves. At this price and P/E (about $75), it is hitting bottom to me, esp. the big boys are selling like hot cakes.

You need to be patient as you're swimming against the tide. Wait for 2 to 3 years.

* Average down is about timing. Take CROX several years ago as an example. CROX had a good audience of shorters and it suffered from temporary setbacks to me. You would lose another 50% at its low. However, after one year, it shot up to over 200% gain from the bottom. When to double down is important. Stay away when the downward momentum is high.

* You need to make sure the fundamentals are there and it is just a temporary setback. When the stock has a potential to go to 0 with fraud or a lawsuit pending, it would be a fool's game to average down.

* Averaging down on BAK is not wise when it is losing from $50 several years ago to about $8 today. When it was $25, it was still not a good price as it was still a falling knife with the problem unresolved.

* Averaging down just because you love a company is not rational.

So, there is no Yes and no No answer. Your success requires you to do some homework and sometimes some luck.