The Art of Averaging
Averaging is a term one may come across in the markets now and again; what this refers to is the average price paid for a particular share if you had bought shares in that particular company.
To calculate the average price paid for a particular share you add up the total amount you have paid for the shares and divide that by the number of shares you have bought in that company.
The answer is the average amount that you have paid per share.
Try this mathematical question:
There are five numbers 10, 20, 30, 40, 50
What is the average number?
The calculation:
Add up the five numbers: 10 + 20 + 30 + 40 + 50 = 150
Divide the total of the five numbers (150) by 5
150 divided by 5 = 30 (answer)
You can do this easily with a calculator.
There are so many share trading platforms available these days that investing directly into the share market has never been easier for the ordinary man and women.
So how does averaging work?
If you purchase stock at regular intervals you will pay different prices for each stock because share prices go up and down. Imagine if you bought something at the supermarket last week at the full price then bought the same item this week on special. The average price you paid for the item will be somewhere between the higher price and the lower price.
The share market works like that. By purchasing a particular stock at regular intervals you will manage to pick up some shares in it when the price is lower. This is the advantage of saving regularly.
In fact I think there is a case for purchasing more shares when the price is low. The average price paid per share is determined by calculations as explained earlier.
The averaging strategy can also be used in crypto currency investing.
Bitcoin is more volatile than the share market so an astute investor who has an eye for a bargain can invest when the price has dropped.
There are so many share trading platforms available that playing the markets are accessible to everyone. I have joined two of them in New Zealand. Most countries have share trading platforms available. Signing up for them is easy; you require some form of identification. Just follow the directions and you are all set up.
TO SUMMARISE
Playing the markets requires a positive mindset and a cool head. If you have these you can profit from falling markets. Averaging is a method that takes advantage of falling markets.
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