"No, you haven't," I interrupted confidently. "You've broken even. You're down two-fifty a share on your pur-chase at ten, you're up two-fifty a share on your purchase at five, and you're even on your final purchase."
Roy corrected us. "You're both wrong."
"I hate math," I growled. "But how can I be wrong? It's just a question of average price. Even I can figure out the average of three numbers."
"How many shares does Tom own?" Roy asked. He then quickly answered his own question, "Forty-three and a third. And how much are the shares currently worth? Seven dollars and fifty cents each. What's forty-three and a third times seven-fifty? Three hundred and twenty-five. How much had Tom invested? Three hundred. He's up twenty-five dollars, an excellent return over such a short period of time."
"How the—"
"Because you're putting in a fixed amount each month, you obtain more shares at the lower prices. You bought twenty shares at five, but only ten at ten. Basically, it means that your average cost per share will be lower than the average price per share. In the long run, or even in the short run, that bodes well for the investor.
"So, when the stock market is struggling one month and your mutual fund is suffering accordingly, don't look at the situation and say, 'Darn, my holding is down.' Look at it and say, 'Eventually the market will go up and take the value of my holding with it, so in the meantime I'm going to pick up shares at a good price.' Dollar cost averaging is great stuff!
"With mutuals, problem number two is timing. It's very difficult for an amateur, or even a professional, to time a purchase accurately. Well, it's no problem at all when you