Your real cost per share after several buys
Buy the same stock three times at three prices and your break-even is none of them. It is the total spent divided by the total shares held, and that single figure decides whether the position is up or down.
The formula
Worked example: $5,000 across 200 shares
Whatever the individual purchases were, the average cost is $25.00 a share. That is the price the stock must exceed before the position shows a profit.
| Buy | Shares | Price | Cost |
|---|---|---|---|
| 1 | 50 | $40 | $2,000 |
| 2 | 50 | $30 | $1,500 |
| 3 | 100 | $15 | $1,500 |
| Total | 200 | $25.00 avg | $5,000 |
The naive average of $40, $30 and $15 is $28.33. The true figure is $25.00, because the cheapest purchase bought twice as many shares. Averaging prices instead of weighting by shares is the standard error here.
Averaging down, honestly
Buying more as a price falls lowers the average and the break-even. It also increases the amount at risk in a position that is, so far, losing money.
In the table above, the third purchase cut the average from $35 to $25 — but it also raised total exposure from $3,500 to $5,000. If the stock keeps falling, the loss is now on a larger base. The strategy pays only when the fall was mispricing rather than deterioration, and that judgment has nothing to do with the arithmetic.
What price is needed to break even
| Average cost | Current price | Rise needed |
|---|---|---|
| $25.00 | $20.00 | 25% |
| $25.00 | $15.00 | 67% |
| $25.00 | $12.50 | 100% |
Losses and the gains that undo them are asymmetric. A 50% fall needs a 100% rise, which is why avoiding large drawdowns matters more than capturing large gains.
What this calculator leaves out
Commissions, which belong in the total invested, and dividends received, which reduce your effective cost. Stock splits change the share count and therefore the average, so recalculate after one.
Tax lots are a separate matter: for capital gains purposes many jurisdictions track each purchase individually rather than using this average.
Averaging up is the other half
Adding to a winner raises the average cost and reduces the percentage gain on the position, which feels like a loss and is not one. Buying 100 more shares at $40 takes the average from $25 to $30 and the position from 200 to 300 shares.
The gain per share falls; the total gain rises with every further increase in price, because there are more shares to gain on. Judging the decision by what it does to the average cost is looking at the wrong number.
The figure your broker shows may differ
Brokers often display an adjusted cost basis rather than a simple average: reinvested dividends are added, return-of-capital distributions subtracted, and wash-sale adjustments applied where they occurred.
For deciding whether to hold or sell, the simple average above is the number you want. For a tax return, use the broker's basis, because that is the figure the tax authority receives.
Related calculators
- Stock profit calculator — the gain once you sell
- Drawdown calculator — the fall you would have to sit through
- Investment calculator — buying on a schedule rather than on dips