# Stock Cost Basis

## Track your stock returns with Calcopolis

**Table of Contents**

- What Is the Cost Basis?
- How Do You Calculate the Cost Basis for the Stock?
- How to Calculate Your Profit or Loss on Stocks?
- The Importance of Tracking Costs Basis
- How to Decrease Your Stock Cost Basis
- Always Keep an Eye on the Market
- Reduce the Number of Unnecessary Shares
- Diversify Your Portfolio
- How to track returns rates from your investments?
- General solutions
- Tracking dividends
- How to tell if a particular company is a good investment?

Whether you’re still a young investor building your portfolio or an aspiring businessperson, the financial complexities of owning stock are probably foremost on your mind.

For example, are you getting the most out of your investment, or are you slowly losing cash without noticing? Sadly, with the volatile stock market, it can be tricky to follow price changes.

So, how do you know how much money you’re making or, unfortunately, losing?

That’s where our CalcoPolis Stock Cost Basis Calculator comes in. It’ll help you determine how much money you’ve made so you can make better investment decisions.

Additionally, if you’re interested in learning more about how it works and the importance of cost basis, read on.

## What Is the Cost Basis?

The stock cost basis, also known as stock average, is essentially the average price you pay per share. It can be easy to track the number if you’ve bought, for instance, 15 shares simultaneously.

However, buying several shares over time can be a lot more complicated. And if you don’t know how much each share costs, it’ll be hard to calculate your average purchase price.

## How Do You Calculate the Cost Basis for the Stock?

To determine the average price per share you paid for your stock, you’ll need to follow this formula that our CalcoPolis calculator uses:

**Cost Basis = (p1 x q1 + p2 x q2 … + pi x qi) ÷ n**

Where:

- p1 — The share’s price on the first purchase
- q1 — the number of shares you bought on the first purchase
- p2 — The share’s price on the second purchase
- q2 — the number of shares you bought on the second purchase
- pi — The share’s price on the last purchase
- qi — the number of shares you bought on the last purchase
- n — the total number of shares you’ve bought

So, for example, say you bought stocks from a company called Reeve where:

- The first three shares were a total of $144—the individual stock was priced at $48
- The second share was $49
- The third share was $43
- The fourth share was $45

Therefore, the total number of shares you bought is 6. To find the average price you paid for each share, you’ll need to apply the formula we mentioned:

**Cost basis = $48 x 3 + $49 x 1 + $43 x 1 + $45 x 1 ÷ 6 = $46.8**

## How to Calculate Your Profit or Loss on Stocks?

Now that you have the average cost of each stock, you can quickly determine how much money you’ve won or lost in this investment by applying this formula:

**Stock Profit/Loss = (Current Stock Price - Stock Basis) ÷ n**

For instance, let’s say that the previous company’s stock value increased to $65. That means your profit is:

**($65 - $46.8) x 6 = $109.2**

On the other hand, if the company’s stock value plummeted to $25, for example, then your loss would be:

**($25 - $46.8) x 6 = -$130.8**

As the minus sign to the number indicates, this isn’t just low profit; it’s a complete loss.

## The Importance of Tracking Costs Basis

Keeping your eyes on your cost basis is critical because it helps you determine how much profit or loss you’re making on your investment.

The lower your basis, the larger the profit. Of course, the opposite is true: the higher your basis, the larger the loss.

Thankfully, knowing your share’s cost basis can help you avoid significant financial losses. It provides you with information that can help you decide whether to sell your shares and take a profit or hold on for the long term.

After all, if you’re making a considerable amount of money from your investment, then you may want to hang onto it for as long as possible.

You’ll need to keep it under close watch for long periods, though, so you can predict when it’ll be worth cashing in on your investment.

## How to Decrease Your Stock Cost Basis

There are a few ways to help you lower your stock cost basis so that you can minimize any future risks. Here are some of them:

### Always Keep an Eye on the Market

When you’re investing in stocks, it’s vital to be aware of market trends. If a company you own takes a dive, avoid panic-selling.

Keep in mind that the stock market will always have ups and downs. So if your investment is going down, don’t sell right away; instead, wait for it to bounce back before selling any share or cashing your profit.

### Reduce the Number of Unnecessary Shares

An easy way for you to control your stock cost basis is to keep the number of shares you own monitored and limited. There’s no need to buy any extra shares unless you have a specific goal in mind.

### Diversify Your Portfolio

Diversifying your portfolio is one of the best strategies for long-term investing success. For instance, If you invest in a single stock and it takes a dive, you’ll lose a lot of money.

However, if you diversify your portfolio, you can offset losses in one stock with gains in another.

## How to track returns rates from your investments?

### General solutions

There are alternative approaches to calculating the return rate of your investments. The most basic one is the Return On Investment Ratio (ROI).

Although it is easy to understand, it has its limitations. Therefore the better approach is to compute the Compound Annual Growth Rate (CAGR).

### Tracking dividends

If your stocks also paid dividends, you can use our holding period return calculator to calculate the total return from stocks.

## How to tell if a particular company is a good investment?

Identifying good investment opportunities isn't an easy task. In fact, it is a very complex topic, and there are many books written on this subject.

If you wish to dive deep into this topic, check out the Earnings Per Share ratio and Earnings Per Share Growth.

If you are looking for more in-depth tools for investors, the Calcopolis team has you covered. Visit our investing calculators category for more tools.

### Authors

Created by **Lucas Krysiak** on 2023-02-21 17:58:06 | Last review by **Mike Kozminsky** on 2023-02-22 13:28:16