You don't lose money until you sell the stock, but as I've learned from GE, there is a potential danger in cost averaging down on a stock. Sometimes, it works out - like with my Target stock. I was negative for a long time on Target, but now I'm positive after averaging down. I would like to think that GE is a big enough company that it'd be safe to average down, but I'm not so sure anymore.
This post is going to calculate how much money it would take to break even on my GE stock.
- GE closing price on Friday, Jan 12th - $18.79
- Current number of shares - 15 shares
- Current average cost - $26.57
- Total Return right now = -$116.77
- Hopeful sell price of $20.00/share
(15 shares) * ($26.57/share) + (X) * ( $18.79) = (15 + X) * ($20.00)
$398.55 + $18.79(X) = (15 + X) * ($20.00)
$398.55 + $18.79(X) = $300 + $20(X)
$98.55 + $18.79(X) = $20X
$98.55 = $1.21(X)
81.45 = X
I also just did the math manually on a spreadsheet, and yes, I would need to buy 81 more shares of GE at $18.79, and then wait for the stock to hit $20.00/share, and I would break even on my stock.
I don't know about you, but I don't have $1,521.99 (81 shares * $18.79/share) to average down on GE stock.
If I bought shares at $18.79, and held until the stock price his $22.00/share, I would only need to buy 22 more shares to break even. 22 shares at $18.79 share = $413.38. I don't have $413.38 to spend on GE, but that's better than $1,521.00.
So....at this point, I'm not really sure what to do. I'm too stubborn to sell for a loss, so I may be holding this GE stock for awhile. GE will announce earnings on January 24th, so we'll see how that goes, and then maybe I'll update my decision.
I hope the math makes sense!