Re: Cash & Gain

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In Reply to: Re: Cash & Gain posted by Mark on April 13, 2004 at 10:36:40:

Thanks for the answer, I know understand the formula better :-)

Then why is the cash account included in the calculation. Isn't like it's calculated twice? I mean for one investment usually there is 1 purchase and 1 redemption but with the cash account, it translate to 2 purchases and 1 redemption.

Is there a way to remove the cash investment from the %Gain calculation ?

Nicolas Fournier.

: : 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 Mark 11:19:04 04/13/04 (1)