Averaging down sounds like “lowering your cost.” What it actually does is invest more money into a mistake.
QUBT is the complete case study.
1. The Timeline: Three Rounds of Averaging
| Date | Action | Price |
|---|---|---|
| 5/28 | Bought 100 shares | $11.6993 |
| 6/30 | Averaged 200 shares | $9.625 |
| 7/17 | Averaged 100 more + cut 100 | $7.68 / $7.90 |
July 17 was the absurd part: averaging down at $7.68 in the morning, cutting at $7.90 in the afternoon. The 100 shares I cut were, on FIFO, exactly the first lot I bought at $11.6993 on May 28.
2. The Ledger
📒 Ledger detail (click to expand)
| Item | Number |
|---|---|
| Cut proceeds | 100 × $7.90 = $790 |
| Matched cost lot | 100 × $11.6993 = $1,169.93 |
| Realized P&L | -$382.15 (-32.7%, FIFO broker settlement basis) |
Meanwhile the QUBT option legs (selling calls for premium, buying back) made about +$241 in the same stretch. One stock averaging wiped it all out.
3. Three Psychological Excuses for Averaging
Every time before averaging, a voice spoke:
- “It’s already cheaper” — down 18% from $11.70 to $9.63, “a shame to miss.”
- “It lowers my average cost” — from $11.70 to $10.32, prettier numbers.
- “Any lower is free money” — I genuinely believed this at $7.68.
What the three excuses have in common: none of them was about why QUBT deserved to be held. All of them were about how I could avoid admitting the first buy was wrong.
Was it wrong? If I’d set an 8% stop on May 28 ($10.76), I’d have left with a $94 loss. After three rounds of averaging: $382.
Averaging turned a $94 mistake into a $382 mistake, plus two months of emotional overhead.
4. The Lesson: Define the Reason Before the Price
There is exactly one legitimate reason to average down: the thesis for the first buy is still intact, and now the price is better.
If your reason is “it fell, so buy,” that’s catching a knife, not averaging.
My new rules:
- Write one sentence before buying: “why I’m buying.” One sentence, on paper.
- If price breaks the thesis (fundamentals/event/technical level), exit — don’t fund the thesis’s life support.
- To average down, rewrite the thesis first. If you can’t write it, you just don’t want to admit the mistake.
A stop-loss turns a mistake into tuition; averaging turns tuition into a loan. This QUBT trade was a two-month loan with $382 in interest.