How to Calculate Stock Average Price
When you buy the same stock at different prices over time, your average cost is the weighted average of all purchases, not a simple average.
Stock Average Formula
Average = Σ(Quantity × Price) / Σ(Quantity)
Example Calculation
| Purchase | Quantity | Price | Total |
|---|---|---|---|
| 1st Buy | 100 | ₹100 | ₹10,000 |
| 2nd Buy (Price drops) | 200 | ₹80 | ₹16,000 |
| Total | 300 | Avg: ₹86.67 | ₹26,000 |
Average = 26,000 / 300 = ₹86.67 (not ₹90 which is simple average)
Averaging Down Strategy
Averaging down means buying more shares when the price falls to reduce your average cost. This is a double-edged sword:
When Averaging Down Makes Sense
- Stock has strong fundamentals (good earnings, low debt)
- Price fall is due to market-wide correction, not company issues
- You have a long-term investment horizon
- You have capital you can afford to lose
- Your conviction in the investment thesis remains strong
When to Avoid Averaging Down
- Company fundamentals are deteriorating
- Industry is in structural decline
- Stock fell due to fraud or governance issues
- You're already over-allocated to this stock
- You're averaging down on speculation, not investment
Target Average Formula
To find how many shares you need to buy at a given price to achieve a target average:
Note: This only works if New Buy Price < Target Avg < Current Avg (for averaging down).
Frequently Asked Questions (FAQs)
Should I average down on a losing stock?
Only if your original investment thesis is still valid. Ask: "Would I buy this stock today at this price if I didn't own it?" If yes, consider averaging. If no, don't throw good money after bad.
How much should I average down?
Never average down in one shot. Use tranches - buy 25-30% more at 10% drop, another tranche at 20% drop, etc. This way you get better average if it keeps falling, and don't miss the recovery if it bounces.
What is the difference between FIFO and average cost?
FIFO (First In First Out) considers first shares bought when calculating profit/loss. Average cost uses weighted average. In India, for unlisted shares FIFO is mandatory. For listed shares, you can choose either for tax purposes.
How does brokerage affect my average?
For accurate average, add brokerage to your purchase price. If you bought 100 shares at ₹100 and paid ₹50 brokerage, effective price = (10000+50)/100 = ₹100.50. This calculator doesn't include brokerage - add it manually if needed.
Can I average up on a winning stock?
Yes, averaging up (buying more as price rises) is valid if the stock continues to show strong momentum and fundamentals. Many successful investors add to winners rather than averaging down on losers.