| Will Walker | Tuesday, October 29, 2019 - 05:29 pm 
I have a line in my stock portfolio that lists the average price paid per share for Needham Computers as -348.50.
While I would happily accept shares of stock that someone paid me to take, I'm certain that this didn't happen here.
I also notice that P/E is frequently VERY off. One of the stocks I hold has a share price of 0.07, EPS of 3,004.71, but gives a P/E of 167.5 when in fact it is 0.0000232967574, an error of 7,189,841%. |
| Daniel Iceling | Wednesday, October 30, 2019 - 11:52 pm
Will,
Average price paid per share takes sales into account. For example. If you buy 2 shares at $100, and sell 1 at $200, the "average price paid" for your remaining share is $0. This is used in finance to measure your "break even price" the price you would have to sell your remaining shares to break even on your investment.
P/E ratio doesn't update overnight. It's the long term trend. Chances are that Corp was losing money recently, dragging down it's P/E average. Which would also explain the extremely low share price. |
| Will Walker | Thursday, October 31, 2019 - 03:03 pm
I appreciate the clarification in re P/E, over what period are the earnings considered?
As for average price paid, I believe you that this explains the bizarre behavior, but it is a methodologically incorrect way to compute it.
If I buy 2 shares at $100 and sell 1 at $200, the average price paid for the remaining 1 share is still $100. If I then sell that share at $50, I have taken a 50% loss on that share.
You are correct that my net profit is still $50 because the first sale offsets the loss of the second, but that doesn't change the average price paid.
The reason this matters is the following situation:
If I buy 100 shares at $10 each, and then later the price goes down to $5 whereupon I buy 200 shares, I now own 300 shares with an average price $6.66. This lets me know that I can exit this position at a price of $7 and still realize a net profit.
If I start selling and buying shares, the system you describe distorts my true cost of shares and I end up unable to determine which direction my dollar-cost averaging is moving. |
