Never Average Down - AI Analysis Prompt
Use this Jesse Livermore rule prompt to apply “Never Average Down” to a specific company. It turns a vague opinion into a repeatable checklist: what facts you must verify, which assumptions matter most, what would invalidate the thesis, and the common misreads that create false certainty. Expect a written output you can save: a thesis summary, key risks, and next-step questions for filings and earnings calls. If a claim matters, require primary-source citations before you act. Educational only — not investment advice.
Full Prompt
You are an investment analyst trained in Jesse Livermore's principle of "Never Average Down." Your core philosophy: tape reading, patience, trade leaders, never average down. Your task is to analyze {Company Name} through the specific lens of this principle.
## Context
Jesse Livermore teaches: "Never average losses. A losing position means your analysis was wrong. Cut it and move on."
## Analysis Framework
### 1. Principle Application Assessment
- How does this principle specifically apply to {Company Name}?
- What aspects of the company are most relevant to "Never Average Down"?
- Rate the company's alignment with this principle: Strong / Moderate / Weak
- What would Jesse Livermore focus on first when evaluating this company?
### 2. Quantitative Evidence
- Identify 3-5 key financial metrics most relevant to this principle
- Analyze these metrics over the past 5-10 years for {Company Name}
- Compare with industry peers and historical benchmarks
- Are the numbers improving, stable, or deteriorating?
- What story do the numbers tell through the lens of "Never Average Down"?
### 3. Qualitative Deep Dive
- Evaluate the non-quantifiable factors Jesse Livermore would examine
- Management quality and alignment with this principle
- Industry dynamics and competitive position
- Business model sustainability viewed through this specific lens
- What would Jesse Livermore want to know that isn't in the financial statements?
### 4. Risk Assessment Through This Lens
- What risks does this principle specifically highlight for {Company Name}?
- What could go wrong that this principle is designed to protect against?
- Are there warning signs that Jesse Livermore would flag?
- Stress-test: How would this company perform under adverse conditions?
- What is the worst-case scenario from this principle's perspective?
### 5. Opportunity Identification
- What opportunities does analyzing through this lens reveal?
- Are there hidden strengths the market may be undervaluing?
- How does this company compare to Jesse Livermore's ideal investment?
- What catalysts could unlock value related to this principle?
### 6. Livermore Verdict
- Summarize: Does {Company Name} pass the "Never Average Down" test?
- Rate the investment opportunity: 1-10 from this principle's perspective
- Clear recommendation: Buy / Hold / Avoid (based on this principle alone)
- What conditions would change your assessment?
- One-paragraph summary capturing Jesse Livermore's likely assessment
## Output Format
Present your analysis with specific data points in each section. Use Jesse Livermore's analytical style: price action analysis focusing on market leaders and trend confirmation. End with a decisive verdict.Related reading (close the loop)
Pick one path below to turn the output into a checkable, repeatable decision policy.
- Read the matching principleDefinition, boundaries, pitfalls, and a minimal checklist.
- Master profileMethodology summary + common misreads for this framework.
- Practice in scenariosTranslate conclusions into “what I do under stress”.
- More prompts from this masterTriangulate with multiple rules instead of anchoring on one prompt.
Educational only. Verify facts with primary sources and apply your own constraints.
Basic Questions
Why did Livermore firmly oppose averaging down on losing positions?
Core idea: never add to a losing position to average down the cost
✅ Using this AI prompt, you can systematically analyze any company or investment opportunity from this principle's perspective.
The prompt guides you to:
1. Assess whether the investment target meets this principle's core requirements
2. Identify key risks and blind spots
3. Provide a 1-10 comprehensive rating
Start by analyzing companies you know well for practice, then apply the framework to new investment decisions.
✅ Using this AI prompt, you can systematically analyze any company or investment opportunity from this principle's perspective.
The prompt guides you to:
1. Assess whether the investment target meets this principle's core requirements
2. Identify key risks and blind spots
3. Provide a 1-10 comprehensive rating
Start by analyzing companies you know well for practice, then apply the framework to new investment decisions.
Usage Tips
Is AI's advice on whether to average down reliable?
⚠️ AI can help analyze rationally, but beware it might "rationalize" your averaging down impulse.
Value:
- Objectively checks if fundamentals truly haven't changed
- Calculates breakeven point and maximum potential loss after averaging down
- Reminds you of Livermore's lesson: averaging down bankrupted him multiple times
Limitations:
- If you ask with bias ("fundamentals are great, should I add?"), AI may follow your lead
- AI can't tell if you're analyzing rationally or making excuses
- Livermore's rule was NEVER average down — discipline matters more than analysis
✅ If you're asking AI "should I average down?" the answer is almost certainly "no." Livermore's iron rule: never add to a losing position.
Value:
- Objectively checks if fundamentals truly haven't changed
- Calculates breakeven point and maximum potential loss after averaging down
- Reminds you of Livermore's lesson: averaging down bankrupted him multiple times
Limitations:
- If you ask with bias ("fundamentals are great, should I add?"), AI may follow your lead
- AI can't tell if you're analyzing rationally or making excuses
- Livermore's rule was NEVER average down — discipline matters more than analysis
✅ If you're asking AI "should I average down?" the answer is almost certainly "no." Livermore's iron rule: never add to a losing position.
Getting started
Does this prompt give investment advice or buy/sell calls?
No. It is a research helper that turns your thinking into checkable inputs and constraints: what evidence you must verify, what would prove the thesis wrong, and what common misreads to avoid. Treat the output as a draft, not a signal. Validate every material number against primary sources (filings, earnings releases, investor presentations, transcripts), and do not act unless you can write down (1) position-size limits and (2) explicit invalidation triggers.
What inputs should I provide for a reliable result?
At minimum: a 1-sentence business model summary, your current thesis (why it wins/loses), time horizon, and risk constraints; a valuation/price range; and the latest financial statements (profit quality, cash flow, debt/liquidity). Add context that reduces hallucinations: the exact filing period, known one-offs, key competitors, and what you do NOT know yet. If an input is missing, label it as missing evidence instead of letting the model guess.
Validation and boundaries
How do I validate the output?
Validate falsifiable claims one by one. Rewrite each key statement into something you can check: the metric, the period, and the source. Numbers must match filings; management claims must be traceable to transcripts/guidance; and “moat” claims need observable evidence (pricing power, retention, switching costs, cost structure). Anything you cannot verify becomes a follow-up task, not a decision trigger. If the model cites dates, confirm they are not beyond its knowledge cutoff.
When should I NOT act on the output?
If you cannot write down invalidation triggers, a position-size cap, or primary-source evidence for the key claims behind “Never Average Down”, do not act. The safer move is usually to reduce size, slow down, and schedule the next review.
More Rule Prompts
Explore other investment principles from this master.
Read the Tape
The tape tells the story. Price and volume reveal what big money is doing. Learn to read market action.
→Be Patient
It was never my thinking that made big money, it was my sitting. The big money is made in the waiting.
→Trade Market Leaders
Trade the leading stocks in leading groups. The leaders show the way for the rest of the market.
→Pyramid Correctly
Only add to winning positions. Your first commitment should be smallest; add more only as profits grow.
→