Stock Markets Exposed

Are there cases where you can benefit with dollar cost averaging for purchasing volitile stocks?

I understand how DCA works, and I've read several websites which describe that you would have a decreased risk at the expense of a decreased rate of return. Anyway I wrote a simple stock simulation software which showed this, but I noticed with "stocks" that have high volitility as compared with the average rate of growth, you can actually increase the number of shares invested versus investing it all at the beginning. For example, if a stock is at $10 and you have $1500, and you could buy 150 shares, but if the stock goes 10,15,5,15,5,15,5,15,5,10 and you bought 15,10,30,10,30,10,30,10,30,15 shares, you would have a total of 190 shares. So it seems that although the average stock price over the period was $10, you could buy more with $150 blocks than investing it all at the beginning. Seems like in the short run, DCA can help for volitile stocks with a high standard dev and low growth. Maybe DCA could benifit over short time scales? Thoughts? Missing something and is this addressed?

Public Comments

1. You are missing that the premise of DCA is that when you invest in the overall stock market, you are being optimistic about the American economy (assuming we are speaking of the U.S.). However, using DCA for an individual stock means the acceptance of not only market risk, but also company specific risk. The overall market might go up and the stock implode. In other words, a single stock or even a non-diversified portfolio is not the proper use of DCA investing. Too much risk.
2. In the case of an individual, specific stock, DCA means that you do not have a strong handle on the price or the timing or both. It the price is right and the time is right, go for the whole enchilada. Averageing, either DCA or "averageing in" is a technique used by people who are timid about making a strong move. Best to build your investing skills to the point where you can move with decision.