Stock Average calculator

Stock Average Calculator

This happens every day in the stock market when we buy shares of a company; instead of increasing its price, it starts decreasing. If our share costs decrease, we sell this share due to fear of decline. 

And because of that, we face a loss in our good shares. Instead of selling our shares, we do an averaging of these shares, and then we will be safe from these losses. So, for that purpose, I will thoroughly guide you about stock averaging and when we should do averaging. 

What is a Stock average calculator?

If the price of our shares goes down, we can buy more shares at this low price. This will reduce our average buying price, called averaging in the stock market. 

Let us understand it with an example. Let's assume we have bought 100 shares of AB Limited at Rs 1000. Thus, the total value of our investment will be one Lac rupee. 

Total investment = 100 * 1000 = 1,00,000

And if, after a few days, the price of shares of AB Limited decreases to 900 rupees. So we will start losing 100 rupees on each share of AB Limited. We have 100 shares of AB limited, which means we will have a loss of 10,000 rupees.  

But actually, the thing to understand is that this loss is showing us, but it has not happened. Until we sell all our shares at 900 rupees, we have not suffered this loss, which is only apparent. Now that the share price has decreased from Rs.1000 to Rs.900, we can do three things. 

1. Firstly, we should sell the shares of AB Limited, fearing that its price may not go down further.
2. Second is that we believe in our shares and ignore this decrease.
3. Thirdly, consider the decrease in price as an opportunity and buy more of its shares. We are now getting shares of AB Limited at a lower cost than before.

How Does Stock Average Calculator Work?

Let's assume we have decided to buy more shares of AB Ltd. because its price has fallen further.  We have bought more 80 shares of AB Limited at a cost of Rs.900. Now we have a total 180 shares of AB Limited. whose average buying price will be lower than before. We find the average buying price using the weightage average method.

We will use this formula to calculate a share average buying price

Average buying price = P1Q1 + P2Q2 / Total numbers of shares

In which

Average buying price = 1000 (100) + 900 (80) / 180

Average buying price = 955.56 RS

Now we have 180 shares of AB limited, and we bought at 955.56 rupees. And as soon as the share price exceeds 955 rupees, we will start making a profit. In this way, we can reduce the buying price of any company's shares by buying more when its share price decreases. 

But we cannot blindly do averaging in any company. Because if the share price goes down instead of going up, we can suffer a considerable loss. 

When should we do averaging? 

I will discuss when averaging can be a good strategy for us. The basic theory of averaging is that companies' share prices do not stay in one direction but go up and down. Whenever a company's share price is low, it is a golden opportunity for outsiders to buy the company's shares at a low price.

 But if we have already purchased a share of a company, it is a good and growing company. So when its share price goes down, we can buy more shares at a lower price, Which can further reduce your average buying price. 

However, it often happens that the share price of some companies goes down, but instead of going up, its share price goes down further, which is an alarming situation for its buyers. Its share price takes years, or its share price does not rise.

 If we invest in such companies, our money can get stuck badly. So we must keep two things in mind before averaging the shares of any company so that we can avoid averaging in the wrong companies. 

1. First, we should do averaging only in good and financially stable companies. That is, companies that are very large and profitable over a long period have less than one debt-to-equity ratio. If the company is not financially strong, even if it is a temporary issue, it can cause a loss to you.
2. Second, if the share price of the company we bought is decreasing, we must find out why its share price is decreasing. For that, we should search for news related to the company And see its quarterly results. When a company's quarterly income falls short of expectations, people start selling its shares, causing its share price to fall. Then, in the next quarter, the company will show promising results, and investors will begin repurchasing its shares. And the cost of the company's shares starts increasing again.

Therefore, we should understand whether the reason for the company's share price to go down is temporary or permanent. As the company is not facing any serious problems in its business, the company is not able to grow, or the company is not involved in any legal issues. 

If any of these things are true, it will be challenging for the company's share price to rise again. Suppose the company is not facing any issues but is financially stable and will grow again, as we did when we bought its shares.

 In that case, we should do averaging because we will benefit from everything when the company's share price increases in the long term. The benefit of averaging will be available only when the cost of the company's shares increases in the long term. 

So averaging is a beneficial strategy to reduce the average buying price of our shares. However, it is also important to note that we can benefit from averaging only from growing and financially stable companies.  The averaging method we have learned is the averaging down method because this is the averaging we do when the share price goes down.

How to use the Stock Average calculator

1. Add the buying price and quantity of the first shares
2. Then add the buying price and quantity of second shares
3. Then click on the “Calculate button”.
4. It will generate an answer for you.

The main benefit of this average price calculator is that you can calculate more than 2 shares. And many of the tools on the internet don’t provide this function. But this share average calculator can help to do this. And if you have mistakenly added a “Share” and now you want to delete this you can do this also.

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