What is "Dollar-Cost Averaging"? Did Benjamin Graham endorse this practice?

Okay, friend. That's a great question, one many new to investing have. I'll explain this concept in plain words to help walk you through it clearly.

Talking About "Dollar-Cost Averaging" (DCA): What Is It? What Did Benjamin Graham, the Father of Value Investing, Think?

First Question: What is Dollar-Cost Averaging (DCA)?

Forget investing for a second, imagine you're buying apples at the market.

The price of apples changes every week – sometimes it's 10 bucks a pound, sometimes it jumps to 15, and sometimes it drops to 8.

You have two ways to buy:

Buying it all at once: You think, "Today's price is good!" and spend 120 bucks in one go at 10 yuan a pound, getting 12 pounds. But next week, if the price drops to 8 yuan, you might regret buying too soon.
The "Dollar-Cost Averaging" method: You decide that regardless of the price, you'll spend only 30 bucks every month on apples.

Let's see what happens with the second method:

Month 1: Price 10 yuan/pound, you spend 30 yuan and get 3 pounds.
Month 2: Price rises to 15 yuan/pound, you spend 30 yuan and only get 2 pounds.
Month 3: Price drops to 8 yuan/pound, you spend 30 yuan and get 3.75 pounds.
Month 4: Price returns to 10 yuan/pound, you spend 30 yuan and get another 3 pounds.

After four months, you spent 30 x 4 = 120 yuan total and got 3 + 2 + 3.75 + 3 = 11.75 pounds of apples.

What's your average cost? 120 yuan / 11.75 pounds ≈ 10.2 yuan/pound.

See? With this "steady-as-you-go" approach of investing a fixed amount regularly, you naturally buy less when prices are high and more when they're low, effectively "smoothing out" your average purchase cost. Even if the market fluctuates, your cost doesn't get too far out of line.

Applying this logic to investing is "Dollar-Cost Averaging" (DCA).

To summarize simply: Dollar-Cost Averaging means investing a fixed amount of money at regular intervals (like monthly, quarterly) into a specific asset (like a stock or an index fund), regardless of whether the price is high or low at the time.

Its core benefits are:

Overcoming emotional bias: Helps avoid the common impulse to "buy high and sell low," ensuring you keep buying even during fearful market lows.
Simplifying decisions: You don't need to guess where the market bottom or top is (honestly, even an oracle can't predict this accurately).
Building wealth gradually: Ideal for salaried workers, turning a portion of their regular income into disciplined long-term investment.

Second Question: Did Benjamin Graham support this approach?

The answer: Absolutely, yes!

Benjamin Graham, the legendary "Dean of Wall Street" and "Father of Value Investing," considered Dollar-Cost Averaging a crucially important and effective investment strategy. He explicitly advocated for it in his timeless masterpiece, "The Intelligent Investor."

Why did he support it? The reasons align perfectly with his investment philosophy:

1. It's Tailored for the "Defensive Investor"

Graham categorized investors into two types:

Defensive Investors: Their primary goal is safety and avoiding significant losses, with minimal time or effort spent on investing. Most regular folks fall into this category.
Enterprising Investors: Willing to dedicate substantial time and expertise to seek above-average returns through deep analysis.

For the "Defensive Investor," DCA is practically the perfect tool. It's a systematic, disciplined investment method, allowing you to participate in the market effortlessly, sharing in economic growth, without needing to be a full-time analyst.

2. It Protects Investors From Emotions

Graham knew that often the investor's worst enemy isn't the market, but themselves. Fear and greed lead to poor timing and decisions.

DCA acts like an "autopilot system." You set your rule (e.g., invest $1000 monthly) and execute it consistently. When the market soars, you don't impulsively invest more; when it crashes, you don’t panic and sell. This discipline is fundamental to investment success, according to Graham.

3. It's Practical and Time-Tested

Graham was exceedingly pragmatic. He favored strategies that were demonstrably effective and simple to execute. He believed that compared to an average person attempting to play the "market timing game" (trying to buy low and sell high), faithfully applying DCA usually delivers far better results over the long run.

In short, Graham viewed Dollar-Cost Averaging as a core operational strategy for defensive investors to build and maintain their portfolios. It's not a high-level secret but rather a simple, robust piece of wisdom that helps ordinary people avoid common investment pitfalls.

So, if you're a typical working professional aiming to build a long-term investment plan for the future, and lack the time for daily market watching or intensive research, then Dollar-Cost Averaging (like monthly investing into an index fund) is definitely a "good companion" worthy of your serious consideration.