Average Down Calculator
Calculate average cost per share when buying more shares at lower prices
Table of Contents
How to Use
- Enter your original number of shares and purchase price
- Add the new shares you want to buy and their price
- Optionally enter current market price to see profit/loss
- View your new average price per share
- See break-even price and total investment
What is Averaging Down?
Averaging down is an investment strategy where an investor buys additional shares of a stock they already own after the price has declined. This lowers the average cost per share, making it easier to profit when the stock price rebounds.
For example, if you bought 100 shares at $50 and the price drops to $30, buying another 100 shares would lower your average cost from $50 to $40 per share. Now the stock only needs to reach $40 (instead of $50) for you to break even.
When to Average Down
- The company fundamentals remain strong despite the price drop
- The decline is due to temporary market conditions, not company-specific issues
- You have conviction in the long-term prospects of the investment
- You have additional capital available without overextending
- The investment still fits your overall portfolio allocation
- You've done fresh research confirming your investment thesis
Risks of Averaging Down
- Throwing good money after bad - the stock may continue declining
- Missing opportunity cost of investing in better opportunities
- Over-concentration in a single position
- Ignoring deteriorating fundamentals
- Emotional decision-making rather than rational analysis
- Averaging down on speculative or poorly-researched investments
Alternative Strategies
Consider these alternatives before averaging down:
- Dollar-Cost Averaging: Invest fixed amounts regularly regardless of price
- Cutting Losses: Accept the loss and redeploy capital elsewhere
- Waiting and Watching: Hold your position and wait for more information
- Diversifying: Invest in different assets instead of concentrating more
- Value Averaging: Adjust investment amounts based on portfolio value goals
Best Practices for Averaging Down
- Set a maximum number of times you'll average down (e.g., 2-3 times)
- Only average down on high-conviction, well-researched positions
- Ensure the investment thesis hasn't changed fundamentally
- Don't violate your position size limits or risk management rules
- Consider averaging down in smaller increments over time
- Keep detailed records of each purchase for tax purposes
- Review the company's latest financial reports and news
- Be honest about whether you're averaging down or trying to rescue a bad investment
Frequently Asked Questions
- Is averaging down a good strategy?
- It depends on why the stock declined. Averaging down works well when a quality company faces temporary setbacks but fundamentals remain strong. However, it's risky if the company's long-term prospects have deteriorated. Always reassess your investment thesis before averaging down.
- How many times should I average down?
- Most experts recommend limiting yourself to 2-3 times averaging down on any single position. This prevents over-concentration and protects against catching a 'falling knife.' Set rules before you start and stick to them emotionally.
- What's the difference between averaging down and dollar-cost averaging?
- Averaging down is buying more shares specifically because the price dropped. Dollar-cost averaging is investing fixed amounts at regular intervals regardless of price. DCA is more disciplined and less emotional, while averaging down is more reactive to price movements.
- Should I average down on losing investments?
- Only if your original investment thesis is still valid and the decline is temporary. If fundamentals have changed or you discover new negative information, it's often better to cut losses rather than throw more money at a deteriorating situation. Be brutally honest in your reassessment.