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Average Down Calculator

Calculate your average cost when buying more shares

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What is Averaging Down?

Averaging down is an investment strategy where an investor purchases additional shares of a stock after its price has declined, thereby lowering the average cost per share. This concept is closely related to Dollar Cost Averaging (DCA), a term coined by Benjamin Graham in his 1949 book The Intelligent Investor.

The average cost is calculated as a weighted average: Average Cost=∑(Pi×Qi)∑Qi\text{Average Cost} = \frac{\sum(P_i \times Q_i)}{\sum Q_i} For example, buying 100 shares at $50 and then 100 more at $40 gives an average cost of 5,000+4,000200=45\frac{5{,}000 + 4{,}000}{200} = 45 per share.

Graham explained that by investing the same amount regularly, "one buys more shares when the market is low than when it is high, and is likely to end up with a satisfactory overall price for all holdings." (Source: Wikipedia, Dollar cost averaging)

However, averaging down carries risks. If a stock is declining due to deteriorating fundamentals rather than temporary market conditions, buying more shares can amplify losses. Always evaluate the company's financial health and outlook before averaging down.

FAQ

What is the difference between averaging down and dollar cost averaging?
Averaging down specifically refers to buying more shares after a price decline to lower your average cost. Dollar cost averaging (DCA) means investing a fixed amount at regular intervals regardless of price. Averaging down is reactive to price drops, while DCA is systematic and time-based.
How do you calculate the average cost per share?
Add up the total amount invested across all purchases (price × quantity for each), then divide by the total number of shares. For example: bought 10 shares at $75 and 15 shares at $62, average cost = (750 + 930) ÷ 25 = $67.20.
When should you average down on a stock?
Averaging down works best when a stock's fundamentals remain strong but the price has dropped due to overall market decline or temporary negative news. Avoid averaging down on stocks declining due to deteriorating earnings or structural problems.
What are the risks of averaging down?
The main risk is increasing your position in a stock that continues to decline, amplifying losses. It can also lead to portfolio concentration risk. Set a maximum investment limit and a stop-loss threshold before averaging down.