Business Glossary

strategy to lower the average price paid for a company's shares. An investor who wants to buy 1,000 shares, for example, could buy 400 at the current market price and three blocks of 200 each as the price fell. The average cost would then be lower than it would have been if all 1,000 shares had been bought at once. Investors also average down in order to realize tax losses. Say someone buys shares at $20, then watches them fall to $10. Instead of doing nothing, the investor can buy at $10, then sell the $20 shares at a capital loss, which can be used at tax time to offset other gains. However, the wash sale rule says that in order to claim the capital loss, the investor must not sell the $20 stock until at least 30 days after buying the stock at $10.

strategy to lower the average price paid for a company's shares. Instead of buying the desired number of shares all at once, the investor would buy some shares initially and then buy additional shares as the price declined, thereby lowering the average cost for all shares bought.