A stock average calculator is a tool that offers a way to establish the cost basis for all the stocks in your portfolio. Understanding how to calculate the average price you pay for shares of stock can show you whether you’re getting the best opportunity cost for buying a stock at its current price. It can also help you see the benefits of using an “average cost down” or “average cost up” strategy as part of a buy-and-hold portfolio.
This article will tell you how a stock average calculator can benefit investors as part of their due diligence and how the MarketBeat stock average calculator helps to simplify that process.
What is a Stock Average Calculator?
A stock average calculator (also known as a share average calculator) is a tool that lets you calculate the average stock price for the stocks you own or are considering buying. Using an averaging share price calculation helps you take an important step to understand your cost basis for owning a stock. It can also help you understand the opportunity cost of selling an underperforming stock and buying it back at a better price.
Many online brokerage platforms will calculate an average stock price but it only does so after you’ve purchased the shares. Among other factors to investigate before purchasing a stock, looking into a stock average calculator can help you do your due diligence. MarketBeat makes it easy to do that research in one website.
For example, let’s say you’re searching for the most active stocks to invest in. Once you find a stock or stocks that fit your criteria, you can use the MarketBeat stock average calculator to see how many shares you can buy based on the available cash you have to invest.
Why is an Average Stock Price Calculator Needed?
It’s simple enough to figure out the average price you pay for a specific stock. In fact, as mentioned earlier, many online trading platforms do that for you.
This is particularly important because most investors buy shares at different times, also known as scaling into a position. One way to do this is to “buy the dip” to average down into a stock. This means purchasing more shares at a lower price than the previous price, which will offer a lower cost per share over time. If the stock moves higher, you can get a better profit than if you had just held the stock without adding more shares.
If you’re more comfortable with a buy-and-hold strategy, you should be confident that the stock you are buying is undervalued and has a high likelihood of moving significantly higher. No investor wants to try to catch a falling knife, which can happen when a stock continues to move lower even as you buy shares at lower prices.
Of course, the opposite can also be true. If a stock is moving higher and you believe it may still go higher, you can buy shares at a higher price than your previous price. This will increase your average price per share. Unless you’re buying a significant number of shares, it may still be worthwhile to buy the stock.
Consider using the MarketBeat stock average calculator as an average up calculator or average down calculator, which allows you to enter the quantity of shares and stock prices on every occasion you purchase the shares.
When you own more than one stock, knowing the average cost you’re paying for each share gives you a better understanding of your portfolio. For example, if your average cost seems high, you may have overpriced stocks in your portfolio. On the other hand, if your average cost seems low, you may be buying too many “cheap” stocks, and they may be cheap for a reason.
If you’re an active trader, you want to know your average stock price because of liquidity, which means understanding how volume affects stock prices. Consider buying stocks when the price moves higher but when sufficient trading volume supports that movement.
MarketBeat provides a stock screener that includes an article called average daily trading volume to help you identify stocks trading at unusual volumes.
How Does the Stock Average Calculator Work?
Similar to other tools such as the MarketBeat dividend calculator, the MarketBeat stock average calculator does the basic math functions involved to calculate average of share price for every stock in your portfolio or watch list.
The basic formula used looks like this: Total cost ÷ Total shares ＝ Stock average
You need to provide two pieces of information:
- Share price: The share price refers to the price you paid for shares. If you purchase shares at multiple times, this is the average share price.
- Number of shares you purchased: The number of shares you purchase refers to the number of shares you purchase at the specific share price you enter. If you purchase shares at multiple times, this is the total number of shares you purchased.
The MarketBeat stock average calculator also provides the option for you to enter a stock into the “choose a stock to populate sell price” to put the real-time stock price for that stock into the calculator. Next, enter the number of shares you purchased or wish to purchase.
The MarketBeat stock average calculator does not specifically break out the number of shares you purchased as opposed to the shares that you may have received by reinvesting dividends. If you want to understand that information on a more granular level, you can use the MarketBeat dividend yield calculator to estimate dividends and more.
How to Calculate the Average Price of a Stock
Knowing how to calculate the average stock price for every stock you own helps establish your personal break-even point. For example, if you bought Apple (NASDAQ: AAPL) when it was at $182.01 on January 3, 2022 and still held the stock, you would be sitting on an 18% loss as of November 14, 2022.
That means you would have to wait for the stock to climb nearly $40 just to break even on your trade. Depending on your timeline that may be too long to wait. For example, if you have learned how to use the MarketBeat retirement calculator, you know the rate of return you need on your money. If you need the money quickly, it may be time to sell AAPL stock for another stock that can provide a better return.
But what if you didn’t make your initial purchase of AAPL stock until it hit its low of approximately $131 in June 2022? You’d be sitting on a nice gain of around 13%. In this case, you may want to add to your position.
Both examples assume that you didn’t buy additional shares after your initial purchase. The reality is that many investors buy shares at different times. This is known as scaling into a position. In that case, it may be helpful to use an average up calculator or average down calculator that allows you to see how buying stocks at a higher or lower price in different quantities will affect your average share price.
To calculate the average stock price of every stock in your portfolio, you can take the following steps.
First, enter the share price of the first stock. If you bought shares at different times, this should be the average cost you paid for those shares. It’s up to you how many decimal places you wish to go.
Enter the number of shares that you own. Many trading platforms allow you to buy fractional shares. Be sure to include these, if applicable. It’s up to you how many decimal places you wish to go.
After you repeat steps one and two for every stock in your portfolio, add all the share prices together. This will give you the numerator for your calculation.
Next, add the total number of shares together. This will give you the denominator for your calculation.
Step 5: Divide.
More specifically, divide the number in step three from the number in step four.This will give you the average price you’re paying for all the stocks in your portfolio
It’s important to know the average price you pay not only for each individual stock in your portfolio, but also for your entire portfolio. There are other factors that enter into this calculation, such as dividend reinvestments and the costs (if any) you pay when you buy a stock. An average share price calculator can give you an insight into the composition of your portfolio.
Keep in mind that you can use the MarketBeat share calculator even if you don’t own the shares. In fact, that’s one of its real benefits. See what a future action might do and then decide whether or not the stock is worth buying at that quantity for that price.
Stock average is calculated by dividing the total cost of the shares by the total number of shares.How many shares do I need to buy to average down? ›
Example of Averaging Down
Consider this example: Imagine you've purchased 100 shares of stock for $70 per share ($7,000 total). Then, the value of the stock falls to $35 per share, a 50% drop. To average down, you'd purchase 100 shares of the same stock at $35 per share ($3,500).
The main advantage of averaging down is that an investor can bring down the average cost of a stock holding substantially. Assuming the stock turns around, this ensures a lower breakeven point for the stock position and higher gains in dollar terms (compared to the gains if the position was not averaged down).Is it worth it to average up in stock? ›
Averaging up can be an attractive strategy to take advantage of momentum in a rising market or where an investor believes a stock's price will rise. The view could be based on the triggering of a specific catalyst or on fundamentals.What is the best way to calculate average inventory? ›
The most common method is to take the total inventory value at the beginning of a period, add it to the total value at the end, and divide it by two. Another way to calculate the average inventory is to take the total cost of goods sold (COGS) during a period and divide it by the number of days in that period.What is the 50 rule in stocks? ›
The fifty percent principle is a rule of thumb that anticipates the size of a technical correction. The fifty percent principle states that when a stock or other asset begins to fall after a period of rapid gains, it will lose at least 50% of its most recent gains before the price begins advancing again.Is 70 stocks too many? ›
Depending on which research you pull, you can find arguments suggesting that anywhere between 10 and 60 individual stocks will make up a well-diversified series of investments. However, for investors looking for a rule of thumb, we would suggest considering this from a budget-first perspective: Invest with funds.How many shares is a good amount to own? ›
While it's easy to imagine how diversifying to avoid that risk is smart, there's no hard and fast number of stocks investors should own. Instead, researchers have generally concluded that owning 20 or more stocks is best for reducing the risk one lousy bet swamps a portfolio.Can you break even by averaging down? ›
The equation explains that investors can break even or book profits more quickly by using an average down strategy than they would otherwise. Thus, when stock prices rise average down approach will earn large profits for the investor as the investor purchases additional shares at a lower price.What are the disadvantages of averaging down? ›
The main disadvantage of averaging down is increased risk. By averaging down, you're also increasing the size of your investment. So if the share price continues to fall, your losses will become greater than your original position.
Averaging down is an investing strategy that involves a stock owner purchasing additional shares of a previously initiated investment after the price has dropped. The result of this second purchase is a decrease in the average price at which the investor purchased the stock. It may be contrasted with averaging up.Is it better to average up or down? ›
Investors and traders like to average up because they view the price increase as validation of their original thesis. Averaging down is the opposite of averaging up; traders buy more to “average down” even though the price has gone down.How much should you invest on average? ›
“Ideally, you'll invest somewhere around 15%–25% of your post-tax income,” says Mark Henry, founder and CEO at Alloy Wealth Management. “If you need to start smaller and work your way up to that goal, that's fine. The important part is that you actually start.”Is it better to average up or down in stocks? ›
Avoid a trap: Many people buy additional shares when the share price is falling. It helps in lowering the average buying price and increase the potential profits. But by buying a stock on the way down, the chances of catching a falling knife increase significantly. Averaging up is a relatively safer strategy.How many shares should I buy to make a profit? ›
The bottom line is that there is no universal answer to this question -- it depends on your personal situation. Just remember to consider these important factors: How much money you have to invest. Whether you need to diversify your investment portfolio or want to put all your available capital into the stock.What happens if I buy 1 share of stock? ›
The Bottom Line. Assuming you choose a reliable company, it is worth investing in one share of stock. Your money is more likely to grow in the stock market than in a savings account, and you may enjoy stock splits, dividends, and other developments that increase your wealth effortlessly.How do you average shares in loss? ›
It is carried out by acquiring more shares after there is a fall in the share price following its initial purchase. Buying more shares means the average cost of all shares held is lowered, and this leads to the breakeven point lowering as well.
Average Basic Shares Outstanding are the average number of current shares in company's stock outstanding over the reporting period, before accounting for the effects of dilution from events like exercises of employee options, convertible bonds, and so forth.