Why Averaging Down Can Destroy Your Portfolio
Monday, September 21, 2026 · Johnny Hopkins
During their recent episode, Taylor, Carlisle, and Ian Cassel discussed Why Averaging Down Can Destroy Your Portfolio. Here’s an excerpt from the episode:
[Ian] The mistake that I’ve done the most is averaging down into losers. You know, I think averaging down especially in micro cap kills more investors than anything. And I think just need to be very very cautious with averaging down.We did some evidence-based research into a bunch of different things. Brian Telford led the charge on this. He produced about 30 white papers specific to micro cap.
And one of them was analysing companies over the previous 10 years that had 60% drawdowns and how many of them recovered. And what was interesting? Well, first of all, I think it was something like 33 or 35% of all micro caps have a 60% drawdown.
So it’s a big part of it, but I think I have to look at I forget the exact number but it was something like 90% of them didn’t recover. You know, so once again, when you’re and I didn’t realise that and like it literally rewired me a little bit cause I was more prone to average down and average down. And after seeing that, I’m like, eh, you know it’s staring at that evidence of how what reality actually is those base rates versus what I want reality to be.
You know, I’m just, I’m very cautious with averaging down into situations. And I pay very close attention today to the amount of at cost capital I’m putting into a position. Cause as you and I, and everybody is well aware you can have a 3% position where you put 20% at cost into it, you know averaging down, you know, and that’s not good.
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