It is an age-old adage that it is impossible to time the market perfectly. Hence, no investor should deploy his/her money on a single stock in one go. Consequently, portfolio selection becomes paramount.
One should apply SIP approach used in mutual funds for stocks as well. Instead of buying in one go, it is beneficial to buy in lots and at different price points, so you get a good average entry point at the end of the process, suggests Udayan Mukherjee, Consulting editor, CNBC TV-18.
This process is called averaging.
Often, a stock going through fairly good trajectory in terms of its own performance makes a big correction mainly due to bearish market environment. This may be good time for a person who has entered the stock already to buy more of the same stock, explained Mukherjee.
Watch the accompanying video for more on how averaging works as a principle, and whether you should choose averaging down or averaging up as an investment strategy.