Average cost per share (PRU): what you have actually paid, on average, per share

When you buy a share in several steps at different prices, the question soon arises: at what average price do you hold it? That is the role of the PRU (in French, "prix de revient unitaire"), the average cost per share. It serves as a reference point to know whether a position is, at a given moment, showing an unrealised gain or loss. This article explains what the PRU is, how to calculate it with several purchases and fees, and how not to make it say more than it measures.

PRU: a simple definition

The PRU is the average acquisition cost of a share you hold: the total spent to acquire it, fees included, divided by the number of shares held. It is also called the average purchase price. It is a reference specific to each investor: two people who hold the same share each have their own PRU, depending on the dates and amounts of their purchases.

The PRU formula

PRU = (sum of purchase amounts + purchase fees) ÷ total number of shares held

Fees (brokerage, any duties) are part of the acquisition cost: including them gives a PRU that better reflects what the position actually cost.

Worked example: a PRU with 3 purchases

Fictitious example. An investor buys a share in 3 steps:

10 shares at €50, that is €500, with €2 in fees;
20 shares at €40, that is €800, with €2 in fees;
10 shares at €60, that is €600, with €2 in fees.

The total spent is 500 + 800 + 600 = €1,900, plus €6 in fees, that is €1,906. The number of shares is 40. The PRU is therefore 1,906 ÷ 40 = €47.65.

If the share then trades at €52, the position shows an unrealised gain of (52 − 47.65) × 40 = €174 before any selling fees. If it trades at €45, it shows an unrealised loss of (47.65 − 45) × 40 = €106.

What happens when you add to a position at a lower price?

Acquiring additional shares at a price below the PRU lowers the PRU: this is called "averaging down". Buying at a higher price makes it rise.

Fictitious example. You hold 40 shares with a PRU of €47.65 (that is €1,906 invested). You acquire 10 more shares at €40, with €2 in fees included in a total of €402. The new PRU is (1,906 + 402) ÷ 50 = €46.16.

The PRU is lower, but nothing has been gained: the position is larger, so more exposed to price moves. Averaging down increases the amount committed to a stock whose price has fallen, which can concentrate the portfolio further. On concentration, see how to diversify a stock portfolio.

The limits of the PRU

It depends on the calculation method. The weighted average described here is not the only one: other methods (such as "first in, first out") give a different cost basis when part of the position is sold.
It ignores time. Purchases count according to their quantity, however old they are: the average says nothing about how long the money stayed invested.
It ignores dividends and corporate actions. A stock split or a capital increase changes the number of shares and the reference price: the PRU must be adjusted.
It says nothing about the quality of the company. Being up or down against your PRU tells you nothing about the value of the share today.

The PRU is, finally, the basis for calculating a gain or a loss: see how to calculate a capital gain or loss.

Key takeaways

The PRU is the average acquisition cost per share, fees included.
It is calculated by dividing the total spent by the number of shares held.
Adding at a lower price lowers the PRU, but increases the amount exposed.
It depends on the calculation method and must be adjusted for corporate actions.

In Earnnest, the PRU of your positions is taken into account in portfolio tracking and in the calculation of the yield on cost.

This article is for information and education only and does not constitute personalised investment advice. The figures in the examples are fictitious and illustrative. It does not cover taxation.