Three Longs & Three Shorts

The case for drip-feed investing is plausible, but costs more

Author: Tim Harford
Source: Financial Times (

In his typical style, the Undercover Economist debunks yet another everyday gospel – cost averaging. He shows that it works neither in theory nor has backing from historical data. Yet, he concludes it might still be the best thing to do simple because the alternatives known to us aren’t any better. However, acknowledging the shortcomings should drive discovery of a better alternative, much like many other aspects of life. “Greg Davies, a behavioural finance expert at Oxford Risk, describes cost averaging as “deliberately doing something slightly inferior, to prevent the likelihood of something very inferior”. Just so. And it is worth looking for other areas where we might benefit from being guided by a slightly inferior rule of thumb — anything from “if it takes less than two minutes, do it immediately” to “never drink alone”. There are exceptions to these rules, but you may be better off just sticking to the rules.As a wise man once said, it’s such a fine line between stupid and clever. Cost averaging seems clever, but we should recognise that its true value lies in not being stupid.”