imported post
someone wrote to tsptalk:
Oh yea, if I buy any stock at one price, and then purchase more stock at a different price, how can I tell or do I get the last price I purchased the stock?"
Welcome, Joan!
When you trade a stock, normallythe price is at the current market price (plus or minus the
spread--the difference between
bid and
ask prices
, within 1/4 dollar of each other) at the time of the trade. There are few exceptions to that, such as Sharebuilder.com, which places stock trades every Tuesday, so your trade will be at the market price some time during that day. Check with your broker for details.
Prior trade prices have no bearing on future trade prices. The two trades will affect your
cost basis, which is what you paid for all of your shares. For example:
You bought 100 shares of XYZ at $10/share and the trade cost $5.
(100 * $10) + $5 = $1005
Your cost basis is $1005/100, or $10.05/share.
The stock increases in value and you decide that it has momentum to climb further and buy 100 more shares at $12/share.
(100 * $12) + $5 = 1205,
plus what you already had
(100 * $10) + $5 = $1005
equals $2210 for 200 shares
Your cost basis is now$2210/200, or $11.05/share.
Later you decide the momentum has run out and sell at $16.50/share.
(200 * $16.50) - $5 = $3295 cash-in-hand
Subtract your cost basis from your sale price to measure profit:
$3295 - $2210 = $1085
Divide your profit by your cost basis to calculate your gain:
$1085 / $2210 = 49% gain
A 49% gain sounds spectacular, but a percentage is not much help without a duration to give it meaning. If it took ten years to make that 49%, then that is equivalent to 4.9%
annualised, not all that great.
If it took only eight months to gain 49%, then you must also annualise it to give it meaning. You do this by finding the monthly rate, then multiplying it by twelve months. You can also divide the rate by the number of days you held the stock and multiply it by 365.
(49 / 8) * 12 = 73.5% annualised, which is spectacular
or
You could divide twelve by the duration and multiply the quotient by the gain:
(12/8) * 49 = 73.5%
...hope that helps.