How Selling Shares Affects Your Average Buying Price

When you buy shares, you often want to calculate the average buying price to understand your cost basis and whether you are making a profit or loss when selling. This guide will walk you through the process of calculating your average buying price and how selling shares impacts this figure.

Understanding Average Buying Price

The average buying price is the cost per share that you paid for your entire holding. It is calculated by dividing the total amount of money you have spent on purchasing the shares by the total number of shares you hold. This value helps you determine the profitability of your investments and calculate capital gains or losses.

Example Scenario

Let's consider an example: You are holding 100 shares of a company at a price of 100 rs per share. Your total investment is 10,000 rs (100 shares * 100 rs). Your average buying price is 100 rs.

Impact of Selling Shares

When you sell some of your shares, the average buying price of the remaining shares can change, but it is also dependent on the price at which you sell those shares. It's important to understand how the sale of shares can impact your average buying price for the remaining shares.

For instance, if you sell 50 shares for 120 rs per share, the total amount you receive is 6,000 rs. This transaction will impact your portfolio in the following manner:

The cost of the 50 shares you sold is 6,000 rs (50 shares * 120 rs). The average price of the shares you sold is 120 rs.

Calculating the New Average Buying Price

To calculate the new average buying price, you need to treat each transaction as an independent event. Here’s how you can calculate it:

Subtract the number of shares sold from your total shares to get the remaining shares. Calculate the total amount of money you have received from the sale. Add the total amount received from the sale to your original investment amount. Add the total number of shares sold to the total number of shares you initially held. Divide the new total amount by the new total number of shares to find the new average buying price.

Excel Sheet for Calculation

Creating an Excel sheet can greatly simplify the process of tracking your portfolio and calculating average buying prices. Here’s how you can set it up:

Worksheet Structure

Column A (Date): Includes the dates of each purchase and sale transaction. Column B (Number of Shares): Includes the number of shares bought or sold in each transaction. Column C (Price per Share): Includes the price per share for each transaction. Column D (Total Cost): Automatically calculates the total cost by multiplying the number of shares by the price per share. Column E (Action): Indicates whether the transaction was a purchase or a sale. Column F (Running Total Shares): Keeps a running total of shares held after each transaction.

Steps to Create the Excel Sheet

Enter your purchase and sale transactions into the appropriate columns. Use formulas to calculate the total cost in Column D. For each transaction, update the running total of shares in Column F. Calculate the total cost of your current holdings in the holding period, then divide it by the total number of shares to find the current average buying price.

Conclusion

By understanding how selling shares can affect your average buying price, you can make more informed investment decisions. Regularly updating your Excel sheet or using an automated tool can help you keep track of your portfolio and make adjustments as needed to maximize your returns. Remember, a well-managed portfolio can help you achieve your investment goals more effectively.