Valuations are important for sure. However, human instinct is to avoid averaging down when the shares we bought are trading at a significant discount. But good companies (market leaders, high ROIC, low debt, good promoter share) are better value at x/2 than at x. If the company is good, I don’t see why I would not invest when the shares are falling in price. I am thinking if tomorrow companies like Colgate Palmolive, Hindustan Unilever, Nestle all fell by 25%-50%, I wouldn’t hesitate buying them and averaging down on them as my time horizon is 10-20 years. If my weightage doesn’t go above 5%-10% in a stock on average then adding another 5% doesn’t really affect portfolio balancing. I think at this point, I wouldn’t want to be thinking in a formulaic manner.
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