The definition accompanying the question hardly makes any sense. Buying more shares in a rising market will not lower the average cost. That would be poor arithmetics, and very bad investing. The additional purcahse will raise the average purchase price, but it is still attractive for two reasons:

1. The new average price will still be lower than the current price, because the investor had already bought a quantity of shares at a lower price.

2. In a rising market, the investor hopes that the price will contiune to rise to a point where a new price will justify the additional purchase.

Here is a clearer definition of the term "average up" from "Wall Street Words" by David L. Scott:

"Average Up: To purchase shares of the same security at successively higher prices. When averaging up, the investor accumulates an increasingly larger position in a security while keeping the average cost of the position lower than the security's current market price. Such an investor will earn significant profits only if the stock price continues to rise. The investor will suffer substantial losses if the stock price quickly drops after he or she has established a large position at increasingly higher prices."


Fuad

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Note added at 2002-09-22 11:59:23 (GMT)
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