Re: Cash & Gain

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In Reply to: Cash & Gain posted by Nicolas Fournier on April 13, 2004 at 10:18:36:

: A couple of months ago I created an cash investment. I followed the FAQ which helped me a lot and bought 1$ units for each dollar in the account. But since that time, each time I trade, my %Gain-I in the portfolio performance report drops. Let's take my last trade:

: Buying for 3054.95$ of stock.This amount is removed from the cash investment and put in a new investment. It means I just tranfered the money from one investment to the other and because gains are around 0% for both investment, I tough it would not affect the %Gain-I of the total portfolio. In fact, the %Gain-I dropped from 30% to 26%. Surprisingly the yield stayed the same.

: I also find intriguing that if I divide the portfolio gain (EndValue+Distributions) by the amount invested, I get 35+% gain.

: I guess, I am missing something. Can you enlighten me ?

: My total portfolio value is arounf 21,000$.

: Nicolas Fournier

Hi Nicolas,

This is correct, and is a result of the fact that %Gains do not
factor in the time weighting (but yields do). %Gains can be
misleading, depending on when the money was invested, since there
is no time weighting.

To explain, the %Gain-I formula is:

(End_Value + Dist_Dist - Redemptions + Purchases ) / Purchases

When you transfer money, this is a redemption in one investment, and
a purchase into another. This will keep the numerator of the %Gain-I
equation constant, but the denominator will go up, thus reducing your
%Gain-I.

You may prefer to look at the %Gain-V, which is:

(End_Value - Beg_Value) / Beg_Value

which would not suffer the same problem as the %Gain-I in your example.
However, this %Gain also does not factor in the time weighting of money.
The yield figures however do all factor in the time value of money.

Thanks,
Mark
--
Mark Beiley

Fund Manager, portfolio management software for Windows 95/98/ME/NT/00/XP

Replies:

• Re: Cash & Gain Nicolas Fournier 11:04:40 04/13/04 (2)
  • Re: Cash & Gain Mark 11:19:04 04/13/04 (1)