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.
As a seasoned financial analyst with a background in investment strategies and portfolio management, I've spent years delving into the intricacies of stock valuation and optimization. My expertise extends to the practical application of tools such as stock average calculators in the context of investment decision-making.
The concept of a stock average calculator is crucial for investors seeking to optimize their portfolios. Let's break down the key concepts mentioned in the article:
Stock Average Calculator:
- This tool, also known as a share average calculator, calculates the average stock price for the stocks in a portfolio or those under consideration for purchase.
- The average stock price helps establish the cost basis for owning a stock. It provides insights into the average price paid for shares, aiding in decision-making.
- Understanding the opportunity cost of selling an underperforming stock and buying it back at a better price is crucial. The calculator assists in evaluating whether the current stock price is favorable.
Average Cost Down/Up Strategy:
- Investors often employ strategies like "average cost down" to buy more shares at lower prices, lowering the overall cost per share. Conversely, "average cost up" involves purchasing shares at higher prices, potentially increasing the average price per share.
- Using a stock average calculator as part of due diligence is emphasized. It helps investors assess the cost implications before purchasing stocks.
MarketBeat Stock Average Calculator:
- The article introduces the MarketBeat stock average calculator as a tool that simplifies the process of calculating average stock prices. It is highlighted as a valuable resource for conducting research.
Buying Stocks Based on Cash Availability:
- The article suggests using the calculator to determine the number of shares to buy based on available cash, especially when searching for active stocks to invest in.
Average Stock Price Calculation:
- The calculator uses a basic formula: Total cost ÷ Total shares = Stock average. Users need to input the share price and the number of shares purchased.
Average Up/Average Down Calculator:
- MarketBeat's calculator allows users to enter the quantity of shares and stock prices on every occasion they purchase shares, facilitating calculations for average up or average down strategies.
Understanding Portfolio Composition:
- Knowing the average cost for each share provides a better understanding of the overall portfolio. High average costs may indicate overpriced stocks, while low averages may suggest an excess of potentially risky "cheap" stocks.
- For active traders, knowing the average stock price is essential for liquidity analysis, particularly in relation to volume and stock price movements.
Calculating Average Stock Price:
- The article outlines steps to calculate the average stock price for each stock in a portfolio, emphasizing the importance of considering factors like dividend reinvestments.
MarketBeat Share Calculator:
- The MarketBeat share calculator is recommended for estimating dividends and gaining a more granular understanding of portfolio composition, especially for investors who buy shares at different times.
In conclusion, the stock average calculator is an indispensable tool for investors, providing valuable insights into portfolio composition, cost basis, and decision-making strategies. The MarketBeat stock average calculator, with its user-friendly features, is presented as a reliable resource for investors conducting thorough due diligence.