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Dollar-Cost-Averaging and the Unluckiest Investor

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By AlphaWolf
March 20, 2001

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Dollar cost averaging will get you nowhere.

Dollar cost averaging is a fraud designed by salesmen to get your money.


While I'm not the biggest proponent of DCA, these statements are wholly unsupported by facts. DCA can be a very useful and successful investment tool with the right company and the right investor. While I could use an example like Dell or Microsoft to show how it could make you millions, I thought it would be better to use the company cited as an example of how DCA doesn't work... Yahoo!

Lets assume there is an investor out there who is the unluckiest investor in the world. Let's call him Apessimist. Apessimist decides to DCA in Yahoo! (a stock that has recently fallen over 95% in value). He decides to invest $100 a month using ETrade (because he's unlucky and ETrade has higher fees than many other discount brokers). Being unlucky, he naturally buys Yahoo! at the absolute highest price during each and every month. Here are the results:

          Highest
Price Invest Shares
Apr-96 $3.58 $100.00 27.9
May-96     $2.77 $100.00 36.1
Jun-96     $2.40 $100.00 41.7
Jul-96     $1.85 $100.00 53.9
Aug-96     $1.84 $100.00 54.2
Sep-96     $2.05 $100.00 48.7
Oct-96     $1.96 $100.00 51.1
Nov-96     $1.69 $100.00 59.2
Dec-96     $1.84 $100.00 54.2
Jan-97 $3.12 $100.00 32.1
Feb-97 $3.02 $100.00 33.1
Mar-97 $2.66 $100.00 37.7
Apr-97 $3.00 $100.00 33.3
May-97 $3.08 $100.00 32.4
Jun-97 $3.28 $100.00 30.5
Jul-97 $4.71 $100.00 21.2
Aug-97 $4.99 $100.00 20.0
Sep-97 $7.25 $100.00 13.8
Oct-97 $7.33 $100.00 13.6
Nov-97 $6.97 $100.00 14.3
Dec-97 $8.88 $100.00 3.9
Aug-98 $25.00 $100.00 4.0
Sep-98 $33.66 $100.00 3.0
Oct-98 $33.28 $100.00 3.0
Nov-98 $56.94 $100.00 1.8
Dec-98 $71.50 $100.00 1.4
Jan-99 $111.25 $100.00 0.9
Feb-99 $90.00 $100.00 1.1
Mar-99 $92.94 $100.00 1.1
Apr-99 $122.00 $100.00 0.8
May-99 $87.66 $100.00 1.1
Jun-99 $89.19 $100.00 1.1
Jul-99 $94.63 $100.00 1.1
Aug-99 $80.25 $100.00 1.2
Sep-99 $93.69 $100.00 1.1
Oct-99 $96.53 $100.00 1.0
Nov-99 $117.63 $100.00 0.9
Dec-99 $224.00 $100.00 0.4
Jan-00 $250.06 $100.00 0.4
Feb-00 $189.91 $100.00 0.5
Mar-00 $205.63 $100.00 0.5
Apr-00 $173.00 $100.00 0.6
May-00 $139.75 $100.00 0.7
Jun-00 $150.00 $100.00 0.7
Jul-00 $142.69 $100.00 0.7
Aug-00 $140.00 $100.00 0.7
Sep-00 $119.25 $100.00 0.8
Oct-00 $91.88 $100.00 1.1
Nov-00 $70.63 $100.00 1.4
Dec-00 $44.00 $100.00 2.3
Jan-01 $43.38 $100.00 2.3
Feb-01 $38.19 $100.00 2.6
Mar-01 $24.44 $100.00 4.1
Totals $6,000.00 817.2


So Apessimist has invested a total of $7,197 ($6,000 plus $19.95 a trade times 60 trades or $1,197). In return, this unlucky fellow has 817.2 shares of that dog Yahoo!, which as of Friday's close was worth $13.56 per share for a total of $11,081! In other words, this unlucky fellow is up $3,884 (or 53%) on a stock that has lost almost 95% of its value recently!

Not bad for a fraud.

Good luck,
AlphaWolf