The trap of averaging down in a bear market

Looking back at the tail end of 2021 and into 2022, one of the more painful lessons for me was the classic trap of averaging down. I had a few positions in what I considered solid, mid-cap tech, companies with strong balance sheets that had seen significant run-ups. As the broader market started to roll over, especially in growth names, I saw each dip as an opportunity to add, believing I was getting a discount on fundamentally sound businesses. My thesis was that these would be the first to recover. What I failed to adequately account for was the sheer force of a liquidity crunch and the market's complete disregard for 'value' in the short term when sentiment turns. Each addition just lowered my average but increased my exposure to a falling knife. The capital allocated to these positions became dead money for far longer than anticipated, and in some cases, the rebound wasn't strong enough to even get me back to my initial entry, let alone my averaged-down price, without a multi-year hold. It tied up significant capital I could have deployed into other sectors that started showing relative strength much earlier. The takeaway was a hard reminder that even good companies can be bad investments if the market structure is against you, and averaging down can quickly turn into chasing a declining trend.