Skip bought 100 shares of a company he liked at $50. The stock climbed to $54 within a month and Skip felt like a genius. Then it slid. $47, $43, and it finally went quiet around $40. Skip is down a thousand dollars, and for his shares to break even, the stock has to climb 25% back to $50.
So Skip averages down. He buys 100 more shares at $40. Now he owns 200 shares that cost him $9,000 total, and his average is $45. The stock no longer has to claw back to $50 to make him whole. It has to reach $45, a 12.5% climb instead of 25%. Same stock, same price, half the hill.
But Skip has doubled his bet on a falling stock. If it keeps sinking to $35, the old Skip would be down $1,500. The new Skip is down $2,000.
| action | price | shares | cost | avg |
|---|---|---|---|---|
| buy 100 | $50.00 | 100 | $5,000 | $50.00 |
| watch it climb | $54.00 | 100 | $5,000 | $50.00 |
| watch it slide | $40.00 | 100 | $5,000 | $50.00 |
| buy 100 more | $40.00 | 200 | $9,000 | $45.00 |
Note: Enter your current position and a free API key to fetch prices. The tool buys enough at the current price to pull your average down toward the market price, within a small % you control.
So, can you buy your way out of a hole? Sort of. You can buy the hole shallower. Skip cut his climb-out in half, but he paid $4,000 for the shovel, and if the stock keeps falling the hole just gets deeper faster. The math only works when the company is fine and the price is the thing that’s wrong. The calculator above tells you what the shovel costs. Whether the company is fine is the part you have to know yourself.