# How to Calculate The Share Average Price? – Example Table Case Study!

Understanding the average price per share is crucial for investors aiming to evaluate the profitability and performance of their stock investments. It is calculated by dividing the Cost Basis—the total amount you’ve invested in a stock, adjusting for any fees—by the total number of shares you own.

For investors who have solely added to their positions, determining the Cost Basis is straightforward: sum up all the money spent on purchases, deducting any foreign exchange (FX) fees if they apply. However, the calculation becomes more complex for those who have sold shares. In such cases, the Cost Basis is determined using the FIFO (First In, First Out) method, which might require assistance from Customer Support to compute accurately. To find the number of shares you hold, check the ‘Investments’ section under your Portfolio page, where each stock’s details are meticulously listed.

## How to Calculate The Share Average Price?

To calculate the share average price, you need to calculate the total amount invested and the total number of shares purchased. Divide the amount invested by the total number of shares you have purchased. This calculation will give you the average price per share you’ve paid over time, offering insight into your overall investment cost.

Calculating the average share price you’ve paid for your investments can be simplified into four straightforward steps, giving you a clear picture of your investment’s cost basis. Here’s how to do it:

1. Prepare Your Spreadsheet: First, create a spreadsheet using your preferred software, like Excel, or use paper. Organize it with columns for the purchase date, the amount invested, the number of shares purchased, and the average purchase price for each transaction.
2. Input Your Data: Fill in the first three columns with the details of each trade. This information is typically found in your brokerage statements. Make it a habit to update this after every trade to keep it current.
3. Calculate Totals: At the bottom of your spreadsheet, sum up the total amount invested and the total number of shares purchased. If you’re using a spreadsheet program, you can easily automate this with a formula.
4. Find Your Average Share Price: Finally, divide the total amount invested by the total number of shares you have purchased. This calculation will give you the average price per share you’ve paid over time, offering insight into your overall investment cost.

Let us make one case study and one example:

Purchase Date Amount Invested ($) Shares Bought Average Purchase Price ($)
January 625.00 25 25.00
February 625.00 30 20.83
March 625.00 37.5 16.67
April 625.00 30 20.83
May 625.00 27.5 22.73
June 625.00 22.5 27.78
Total 3750.00 172.5 21.74

To calculate the average purchase price of shares over multiple transactions, you’ll combine the total amount invested with the total shares bought across all transactions. The table you’ve provided summarizes six months of investments, showing how much was invested each month, how many shares were bought, and what the average purchase price was for each month. However, we’re ultimately interested in the final average purchase price across all transactions. Here’s how it’s calculated:

1. Total Amount Invested: This is the sum of all money invested over the period. For your example, this total is $3,750.00. 2. Total Shares Bought: This is the sum of all shares purchased over the period. In your case, this total is 172.5 shares. 3. Average Purchase Price: This is calculated by dividing the total amount invested by the total number of shares bought. Let’s break it down step by step with your provided data: • January:$625.00 invested for 25 shares results in a purchase price of $25.00 per share. This is straightforward since it’s the initial purchase. • February: An additional$625.00 invested for 30 more shares. The average purchase price for this month is listed as $20.83, but let’s focus on how the overall average purchase price is recalculated. • March through June: The process repeats with varying shares bought for the same investment amount each month, leading to different average monthly prices based on that month’s transaction alone. To find the total average purchase price across all these transactions, you disregard the individual monthly averages and use the total sums: • Total Amount Invested =$3,750.00
• Total Shares Bought = 172.5

Using the formula:

Substitute the total values into the formula!

Let’s calculate the exact average purchase price. The average purchase price across all transactions is approximately $21.74. This value is derived by dividing the total amount invested ($3,750.00) by the total number of shares bought (172.5), matching the total average purchase price in your table. This calculation provides a comprehensive view of the average cost per share over the period, accounting for all investments and shares acquired. ?

Knowing the average share price is essential, particularly for investors who engage in dollar-cost averaging or accumulate company shares over time. Here are key reasons why understanding the average share price is crucial:

1. Investment Performance Evaluation: The average share price helps investors assess their investment performance relative to the current market price. By comparing the average price at which they purchased shares to the current price, investors can quickly determine if they are in a profit or loss position.
2. Strategic Decision Making: Knowing the average share price assists investors in making informed decisions about buying more shares or selling existing shares. An investor might take profits if the current market price is significantly higher than the average purchase price. Conversely, if the market price is lower, they might buy more shares to reduce their average purchase price, assuming they believe in the long-term value of the investment.
3. Tax Implications: For tax purposes, especially in jurisdictions where capital gains are taxed, the average purchase price is essential for calculating the cost basis of an investment. This calculation is necessary to determine the capital gain or loss upon the sale of shares, which directly impacts the amount of tax owed.
4. Portfolio Management: Understanding the average share price across different investments helps investors manage their portfolios more effectively. It allows them to identify underperforming or overperforming investments and adjust their strategies accordingly.
5. Dollar-Cost Averaging Benefit: For those employing a dollar-cost averaging strategy, tracking the average share price over time is crucial. This strategy involves investing a fixed amount of money at regular intervals, regardless of the share price, leading to purchasing more shares when prices are low and fewer when prices are high. The average share price provides a clear metric to gauge the effectiveness of this strategy over time.

## How can the average price of a share be reduced?

“Averaging down” is an investment strategy employed by investors to reduce the average cost per share of an investment potentially. When the price of a stock an investor already owns declines, the investor purchases more shares at a lower price. This action increases the total number of shares the investor owns but decreases the average cost per share across all investments in that stock.

The rationale behind this strategy is to lower the break-even point—the price at which the value of the investment equals the amount initially invested—thereby potentially increasing the likelihood of profitability if the stock’s price rebounds. This tactic can signify confidence in the stock’s long-term performance. However, it also involves the risk of further decline, meaning the investor should firmly believe in the stock’s recovery potential or be willing to accept the increased risk.

Let’s assume an investor has purchased shares of Google (now under Alphabet Inc.) and wants to use the averaging down strategy to reduce the average cost of their investment due to a recent decline in the stock price. Here’s how this strategy might work in practice:

### Initial Purchase:

• The investor buys ten shares of Google at $1,500 per share. • Total investment = 10 shares *$1,500/share = $15,000. • Average cost per share =$1,500.

• The price of Google shares drops to $1,200 per share. ### Averaging Down: • The investor decides to buy ten additional shares at the new price of$1,200.
• Additional investment = 10 shares * $1,200/share =$12,000.

### Calculating the New Average Cost:

• The investor now owns 20 shares (10 original shares + 10 new ones).
• Total investment = $15,000 (initial purchase) +$12,000 (additional purchase) = $27,000. • The new average cost per share is calculated as follows: Total investment / Total number of shares =$27,000 / 20 shares = $1,350 per share. By purchasing additional shares at a lower price, the investor has successfully reduced the average cost of their Google shares from$1,500 to $1,350 per share. This means that the investor’s break-even point is now lower, and they don’t need the share price to recover fully to the original purchase price of$1,500 to start seeing a profit; a rebound to just above \$1,350 would suffice. However, it’s important to remember that while averaging down can reduce the average cost per share, it also doubles the investor’s exposure to the stock, which could lead to more significant losses if the stock price continues to fall.

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Fxigor

Igor has been a trader since 2007. Currently, Igor works for several prop trading companies. He is an expert in financial niche, long-term trading, and weekly technical levels. The primary field of Igor's research is the application of machine learning in algorithmic trading. Education: Computer Engineering and Ph.D. in machine learning. Igor regularly publishes trading-related videos on the Fxigor Youtube channel. To contact Igor write on: igor@forex.in.rs

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