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Part III: A Potpourri of Investment Information
Chapter 18 - Analysis
Capital Gainz provides all the numbers you need for analysis. The
variety of calculations and reports available will help you keep on top of
your portfolio's performance. The goal of this chapter is to point out
what Capital Gainz offers for analysis. For specific information and
advice, you should consult other sources, such as the business section of
your local newspaper, investment books and newsletters, and financial
advisors.
The separate Capital Gainz Graphics Program lets you see prices,
moving averages, total return, allocation, and performance in graphical
form. For most people, this is easier to digest than lengthy reports. The
Graphics Program is discussed in detail in the Capital Gainz Graphics
Program Users Manual.
18.1 Discrepancies
18.1.1 Open Shares Rounding
===>>> The Open Shares Log and Open Shares Detail Report calculate each
purchase's gain or loss. However, the security's total gain or loss on the
Local Security Table and Portfolio Detail Report is calculated by
multiplying the total number of open shares by the current price, and
subtracting the total basis amount. Because of rounding, this total may
not be the exactly same as summing the gain or loss of all the individual
records, but will be very close.
18.1.2 Average Selling Method
===>>> You are likely to see rounding whenever you use the averaging
selling method. When you sell the shares, the average price is used as the
basis price. However, when this price is multiplied by the number of
shares, the resulting amount is rounded to the nearest cent. Thus, the
purchase amount subtracted for the shares sold may alter the basis price
of the remaining shares. Likewise, the open basis price for the shares
sold may differ from the basis price displayed before the sale. However,
any difference is insignificant, and the underlying purchase amounts are
kept consistent.
18.1.3 Local Security Precisions
In the Local Security Form, you can specify share number and price
precisions for a local security. Check the statements from your broker or
mutual fund company and see what precisions they use, so your totals and
their totals will match. These precision entries are especially helpful
when you record purchases, sales, and distributions, because the figures
calculated by Capital Gainz will match the actual figures without
modification if you defined them correctly.
Capital Gainz Users Manual 18-1
18.1.4 Mutual Fund Total Return
It's difficult to get an exact match between the total return
calculated by Capital Gainz and the total return calculated and advertised
by your mutual fund company. The beginning and ending dates and prices
must match, as do all distribution amounts and reinvestment prices. Even
then, the mutual fund company may use greater precision in their
calculations. In any case, the total return figure reported by Capital
Gainz should be very close to the figure reported by the mutual fund
company.
18.2 Open Shares Gain/Loss
The first step in analysis should be checking the gain/loss on your
open shares. You can see these figures in the Local Security Table, the
Portfolio Table, the Portfolio Summary Report, the Portfolio Detail
Report, the Activity Summary Report, and the Open Shares Detail Report.
gain/loss = open_shares_value - open_shares_basis - open_shares_comm
open_shares_value = open_shares * current_price
open_shares_basis (average) = open_shares * average_price
open_shares_basis (cost) = open_shares_amount
The price for the average method is derived from the open totals
maintained in the local security record:
local_sec_open_amt
average_price = ─────────────────────
local_sec_open_shares
18.2.1 Example - Open Shares Gain/Loss
For example, say you made the following purchases:
100 shares at $10 each, for $1000, with a $30 commission
100 shares at $9 each, for $900, with a $30 commission
The current price is now $11.00. Your current, unrealized gain would be:
gain = (200 * $11) - ($1000 + $900) - ($30 + $30) = $240
If the current price was $9.50, your current, unrealized loss would be:
loss = (200 * $9.5) - ($1000 + $900) - ($30 + $30) = -$60
18.2.2 Open Shares Gain/Loss Percentage
The gain/loss percentage for open shares, assuming you don't include
commissions in the basis, is calculated with:
Capital Gainz Users Manual 18-2
open_shares_gain_loss
─────────────────────────── * 100
open_shares_basis
If you include commissions in the basis:
open_shares_gain_loss
──────────────────────────────────── * 100
open_shares_basis + open_shares_comm
18.2.3 Example - Open Shares Gain/Loss Percentage
Using the previous examples, these are the gain/loss percentages:
Commissions not in basis: Commissions in basis:
$240/$1900 = 12.63% gain $240/$1960 = 12.24% gain
-$60/$1900 = -3.16% loss -$60/$1960 = -3.06% loss
18.2.4 Broker/Investment Company Performance
You can choose to subtotal the Portfolio Detail Report by
broker/investment company. This feature is useful for comparing
performance if you rely on a broker or investment advisor for advice.
These comparisons will indicate both the best stock and the best
investment type recommendations.
You can also use the subtotals to compare the performance of different
mutual fund groups. However, to have a fair comparison, you should hold
similar fund types in each group.
18.2.5 Reinvested Distributions
If you set the Subtract Reinvested report parameter to YES, then
reinvested distributions are subtracted from cost to determine open shares
gain/loss on the Portfolio Detail and Summary Reports.
===>>> To generate the Portfolio Detail and Summary Reports with Subtract
Reinvested set to YES, each security's open shares and distribution logs
are examined. If a purchase is made on the same day as a distribution, the
distribution amount is assumed to be reinvested. Even if you just happen
to purchase shares of stock on the same day you record a distribution for
currently owned shares of the security, the amount of the distribution is
assumed to be reinvested.
Thus, assuming all distributions are reinvested:
gain/loss = open_shares_value - open_shares_basis - open_shares_comm
open_shares_value = open_shares * current_price
open_shares_basis (avg) = open_shares * average_price - distr
open_shares_basis (cost) = open_shares_amount - distr
Capital Gainz Users Manual 18-3
===>>> The gain/loss percentage calculated with Subtract Reinvested will
be the same as the performance figure calculated on the Activity Summary
Report if one initial purchase was made, no shares were sold, and all
distributions were reinvested.
18.2.5.1 Example - Subtract Reinvested
For example, say you have the following activity in a bond fund:
1/01 Buy 100 shares at $10 for $1000.00
6/01 Dividend of $0.20 per share, for a total of $20.00
6/01 Buy 2.051 shares at $9.75 for $20.00 (reinvestment)
12/31 Dividend of $0.15 per share, for a total of $15.31
12/31 Buy 1.612 shares at $9.50 for $15.31 (reinvestment)
12/31 Capital gain of $0.45 per share, for $45.92
12/31 Buy 4.834 shares at $9.50 for $45.92 (reinvestment)
open_shares_value = 108.497 shares * $9.50 = $1030.72
distr = $20.00 + $15.31 + $45.92 = $81.23
open_shares_basis = $1000 + $20.00 + $15.31 + $45.92 - $81.23 = $1000
open/gain loss = $1030.72 - $1000.00 = $30.72
= $30.72/$1000 = 3.07%
If we didn't include reinvestments:
open_shares_value = 108.497 shares * $9.50 = $1030.72
open_shares_basis = $1000 + $20.00 + $15.31 + $45.92 = $1081.23
open/gain loss = $1030.72 - $1081.23 = $-50.51
= $-50.51/$1000 = -5.05%
In this example, bi-annual dividends were paid, and the dropping share
price results in a higher yield:
yield = (0.15 * 2)/9.50 = 3.16%
===>>> By subtracting distributions from cost when considering
reinvestments, the poor performance of the fund is masked. You see the
3.07% gain and 3.16% yield, and figure it's doing fine for a short term
bond fund. However, you are including distributions twice in your
assessment! It's much better to look at the gain/loss and yield
separately. Doing this, the 3.16% yield is fine, but you see that the loss
of 5.05% on open shares is eating away at your performance. Looked at this
way, you'll probably consider switching to a better performing fund.
18.3 Closed Shares Gain/Loss
Closed share performance is available from the Activity Summary
Report, the Closed Shares Detail Report, and the Open Information for
Shares Sold Report. This figure will tell you if you've been slow to cut
your losses, or quick to realize your gains.
Capital Gainz Users Manual 18-4
closed_shares_amount = number_of_shares_sold * selling_price
open_shares_basis (average) = open_shares * average_price
open_shares_basis (cost) = open_shares_amount
gain/loss = closed_shares_amount - open_shares_basis -
closed_shares_comm - open_shares_comm
18.3.1 Example - Closed Shares Gain/Loss
For example, say you executed the following sale:
Sell 200 shares at $11.00 with a $45 commission.
The shares were purchased in two 100 share lots:
100 shares at $10 each, for $1000, with a $30 commission
100 shares at $9 each, for $900, with a $30 commission
The realized gain on the sale would be:
gain = (200 * $11) - ($1000 + $900) - ($45) - ($30 + $30) = $195
If you executed the sale at $9.50 instead, the realized loss would be:
loss = (200 * $9.5) - ($1000 + $900) - ($45) - ($30 + $30) = -$105
18.3.2 Closed Shares Gain/Loss Percentage
The gain/loss percentage for closed shares, assuming you don't include
commissions in the basis, is calculated with:
closed_shares_gain_loss
───────────────────────────── * 100
open_shares_basis
If you include commissions in the basis:
closed_shares_gain_loss
───────────────────────────────────────────────────────── * 100
open_shares_basis + open_shares_comm + closed_shares_comm
18.3.3 Example - Closed Shares Gain/Loss Percentage
Using the previous example, these are the gain/loss percentages:
Commissions not in basis: Commissions in basis:
$195/$1900 = 10.26% gain $195/$2005 = 9.73% gain
-$105/$1900 = -5.53% loss -$105/$2005 = -5.25% loss
18.4 Average Price
The average price calculation for the shares purchased is:
open_shares_basis
average price = ─────────────────────
number_of_open_shares
Capital Gainz Users Manual 18-5
This is a weighted average, telling you the average price that you paid
for shares of the security.
The average price calculation for the shares sold is:
sold_shares_amount
average price = ─────────────────────
number_of_sold_shares
Again, this is a weighted average, telling you the average price that you
realized on shares of the security.
18.4.1 Monthly Average Price
In the Price History Table and Report, the monthly average price is
calculated by first averaging the prices in each month, then averaging
each month's average price. This accounts for a varying number of monthly
entries.
sum(prices_in_month)
month average = ────────────────────
number_of_prices
sum(month_average)
monthly average price = ──────────────────
number_of_months
18.4.2 Average Price - Example
Say you've recorded the following purchases:
1/ 1/91 Buy 100 shares at $9, for $900
1/15/91 Record price of $7
2/ 1/91 Buy 200 shares at $8, for $1600
2/15/91 Record price of $10
2/20/91 Record price of $12
3/ 1/91 Buy 100 shares at $10, for $1000
avg purchase price = ($900 + $1600 + $1000)/(100 + 200 + 100) = $8.75
1/91 average: ($9 + $7)/2 = $8
2/91 average: ($8 + $10 + $12)/3 = $10
3/91 average: ($10)/1 = $10
monthly avg price = ($8 + $10 + $10)/3 = $9.33
18.5 Current Yield
Current yield refers to the simple annual percentage you can expect
from a given security. Some securities don't pay out dividends or
interest, and thus have a current yield of 0%. Only dividends/interest are
used, even though most mutual funds also regularly make capital gains
distributions. Capital gains distributions are erratic, rendering any
calculations based on them meaningless.
Capital Gainz Users Manual 18-6
The current yearly dividend/interest payout for a security is
calculated as the number of payouts per year multiplied by the last per
share payout.
(dividends_per_year * last_dividend_per_share)
yield = ────────────────────────────────────────────── * 100
last_price_per_share
Current yield is usually more important for bonds or large company
mutual funds and stocks, where price appreciation is a secondary
consideration. For growth or small company mutual funds and stocks, other
performance figures, such as total return, are more important.
Note that current yield is really a measure of expected return. That's
why Capital Gainz takes the last dividend/interest distribution per share
and multiplies it by the number of expected dividend/interest payouts. An
alternative is to sum all dividend/interest distributions over the last
year.
18.5.1 Example - Current Yield
Say you own 100 shares of a security that distributes dividends
quarterly. A $76.00 dividend payment translates into $0.76 per share.
Multiply by four, since the dividend is quarterly, and you have a $3.04
per share annual dividend. If the shares are trading at $45.00 each, then
the current yield is 6.76%.
(4 * .76)
─────────── * 100 = 6.76%
45.00
18.5.2 Distribution Per Share
The distribution per share figure is the dividend rate for stocks.
Most mutual fund statements include a per share value on the statement
declaring the amount of the distribution. If the mutual fund company does
not include the per share figure, you can let Capital Gainz calculate it
in the Distribution Form. The calculated value should be very close to the
actual value. There are two slightly different ways to calculate this
figure, depending on the type of security. For most stocks and stock
mutual funds, use the following:
distr_amount
distr_per_share = ─────────────
shares_owned
However, many cash securities and bond or money market mutual funds factor
Capital Gainz Users Manual 18-7
in shares held for partial distribution periods:
shares_entire: Shares held for the entire distribution period
= number of shares
shares_partial: Shares held for part of the distribution period
(distr_date - purchase_date)
= shares * ────────────────────────────
365/div_per_year
distr_amount
distr_per_share = ───────────────────────────────
shares_entire + shares_partial
Capital Gainz assumes any security paying dividends monthly (dividends
per year = 12) uses partial dividend periods. Other securities are assumed
not to. The difference is not very significant, and only applies to the
default per share value calculated in the Distribution Form.
18.5.3 Example - Distribution Per Share
Assume the following activity for a fund that pays quarterly
dividends:
1/01/92 Own 100 shares
1/15/91 Buy 10.00 shares
1/31/91 Dividend of $45.87
The dividend per share is calculated with:
distr_amount 45.87
distr_per_share = ───────────── = ────── = 0.417
shares_owned 110.00
However, for a money market mutual fund that pays monthly dividends, the
dividend per share is calculated with:
shares_entire = 100.00
(1/31/91 - 1/15/91)
shares partial = 10.00 * ──────────────────── = 5.33
365/12
45.87
distr_per_share = ────────────── = 0.435
100.00 + 5.33
18.5.4 Portfolio Yield
The Local Security Table and Portfolio Detail Report both show a total
portfolio yield. This yield is simply the average of all yields for
securities with open shares:
portfolio_yield = average(yield of active securities)
Capital Gainz Users Manual 18-8
18.6 Total Return
===>>> The total return calculation, shown on the Activity Summary Report,
shows how a particular security fared over a specified period. This figure
represents a buy-and-hold strategy, which may or may not be equivalent to
the performance that you realize. Total return is calculated by scanning
the Price History File for prices and distributions per share.
Distributions are assumed to be reinvested. The actual calculation is:
begin_shares = 1.00
end_shares = 1.00 + shares_bought
shares_bought = sum(distr_per_share/reinvestment_price)
begin_value = begin_shares * begin_price
end_value = end_shares * end_price
(end_value - begin_value)
total return = ───────────────────────── * 100
begin_value
When comparing the performance of securities, it's important to
compare 'like' periods. For instance, comparing the return of Mutual Fund
A from 1988-1991 to Mutual Fund B from 1985-1988 unfairly penalizes Mutual
Fund B, since there was a severe market correction in 1987. If these are
the only periods data is available for these two funds, no reliable
comparison can be made.
18.6.1 Total Return Rate
To compare the total return figure to a fixed, compounded investment,
an annual rate is also calculated. This rate assumes simple, yearly
compounding of interest, and is calculated by:
begin_date = date of first price found within date range
end_date = date of last price found within date range
(end_date - begin_date)
years = ───────────────────────
365
end_value 1
rate = ( ─────────── ^ ───── - 1 ) * 100
begin_value years
18.6.2 Example - Total Return
For example, say Carolina Power and Light (CPL) had this data for
1/1/90 through 12/31/91 (quarterly dividend per share was 0.73 in 1990 and
0.76 in 1991):
Capital Gainz Users Manual 18-9
begin_shares = 1.00
end_shares = 1.00 + shares_bought
begin_price = 47.228 on 1/ 3/90
end_price = 52.625 on 12/27/91
shares_bought = .1387
( 2/ 2/90: ((1.0000 + .0000) * .73)/43.637 = .0167
5/ 2/90: ((1.0000 + .0167) * .73)/43.695 = .0170
8/ 6/90: ((1.0167 + .0170) * .73)/43.651 = .0173
11/ 5/90: ((1.0337 + .0173) * .73)/43.318 = .0177
2/ 1/91: ((1.0510 + .0177) * .76)/45.292 = .0179
5/ 2/91: ((1.0687 + .0179) * .76)/48.058 = .0172
8/ 1/91: ((1.0866 + .0172) * .76)/47.420 = .0177
11/ 1/91: ((1.1038 + .0177) * .76)/49.625 = .0172
Total: .1387)
begin_value = 1.00 * .47.228 = 47.228
end_value = (1.00 + .1387) * 52.625 = 59.924
years = 2
(59.924 - 47.228)
total return = ───────────────── * 100 = 26.88%
47.228
The price contribution to the total return was:
(52.625 - 47.228)
───────────────── = 11.43%
47.228
The rest of the increase is attributable to reinvested distributions. The
annual rate is:
59.924 1
rate = ( ───────── ^ ─── - 1 ) * 100 = 12.64%
47.228 2
So to beat the performance of CPL over the two years, you would have
needed a fixed income investment yielding better than 12.64%.
18.6.3 Total Return for All Securities
The Total Return and Activity Summary Reports show the total return of
all securities. In order to arrive at this figure, the price and return of
each security are normalized, so higher priced securities aren't weighted
more than lower priced ones. This means that total return reflects the
same initial investment in each security.
The prices are normalized by assuming a fixed starting price of $100,
and determining a factor for each security based on its actual starting
price. This factor is then used to normalize the end price, distributions
per share, and shares bought:
Capital Gainz Users Manual 18-10
factor = 100/first_price
normalized_begin_price = 100.00
normalized_end_price = end_price * factor
normalized_distr_per_share = distr_per_share * factor
normalized_shares_bought = shares_bought * factor
For instance, if you have three securities in a portfolio with the
following starting and ending prices:
security 1: 10.00 to 12.00
security 2: 25.00 to 40.00
security 3: 50.00 to 40.00
the normalized starting and ending prices would be:
security 1 (factor = 100/10 = 10): 100.00 to 120.00
security 2 (factor = 100/25 = 4): 100.00 to 160.00
security 3 (factor = 100/50 = 2): 100.00 to 80.00
total : 100.00 to 120.00 (360.00/3)
This accounts for the price figures. To get the total return rate, we
recognize that percentage already represents a normalized figure, so
simply average the return rates of all securities:
total_return = average(total return of all securities)
===>>> An alternative way to figure total return of all securities would
be to assume one share of each security is purchased at the start of the
period. The problem with this approach is that securities are weighted
based on price. Say you had two securities, one that started at 10 and
finished at 20, and one that started at 50 and finished at 50. If you
bought one share of each at the start, using the share-based calculation
the total return would be:
total_return = ((20 + 50) - (10 + 50))/(10 + 50) = 16.67%
However, using the dollar-based calculation employed by Capital Gainz:
total_return = ((20 - 10)/20 + (50 - 50)/50)/2 = 25.00%
The dollar-based calculation simply makes more sense.
===>>> If no date range is requested, then the date range used for total
return of all securities is the longest range found for any security. If
any securities were held significantly less than this range, their
contribution is negatively affected. For instance, if one security is held
from 1/1/80 to 12/31/92, and another security is held from 1/1/92 to
12/31/92, then the second security's total return only covers one year,
yet the total return for all securities covers 12 years. No adjustment is
made. Thus, to accurately use this figure, a reasonable date range, such
as one year, is required.
Capital Gainz Users Manual 18-11
18.7 Performance
===>>> The Activity Summary Report processes all of your activity in a
security to come up with a figure showing your performance. If you had
purchased shares at the beginning of the period, reinvested all
distributions, and not made any other purchases or sales, then this
calculation will be the same as the total return figure for the security.
However, if you purchased other shares over the period, or sold shares
over the period, then your actual performance will be better or worse than
the total return of the security over the period.
This performance calculation is complex. The goal is to measure in-
flow and out-flow of dollars to arrive at how much money you would have
made, or lost, if you liquidated the account. Unlike all other
calculations in Capital Gainz, this figure adds back open shares amounts
that you sold later. It's like taking a snapshot of your portfolio at the
beginning and ending of the period: if you sold shares after the specified
end date, they are still considered to be open at the specified end date.
There are five components to your performance:
o Your holdings as of the specified begin date. This includes shares
purchased before the begin date and not sold as of the begin date.
o Your buy activity over the period. This includes all purchases between
the begin and end dates, regardless of whether or not you sold the
shares later.
o The distributions you received, and fees you paid, over the period.
o Your selling activity over the period.
o Your holdings as of the specified end date. This includes shares
purchased before the end date and not sold as of the end date.
These figures are then combined into an overall performance figure.
begin_price = first price found after begin date
initial_value = open shares at begin date * begin_price
end_price = last price found before end date
end_value = open shares at end * end_price
sell_amt = total amount of sales over the period
sell_comm = total selling commissions over the period
buy_amt = total purchase amount over the period
buy_comm = total purchase commissions over the period
distr = total dividends, interest, and capital gains
received over the period
fees = total fees paid over the period
(end_value)
+ (sell_amt - sell_comm)
+ (distr - fees)
- (initial_value + buy_amt + buy_comm)
───────────────────────────────────────
= total_period_return = performance
Capital Gainz Users Manual 18-12
18.7.1 Partial Period Adjustments in Performance
The performance return calculation uses partial period adjustments to
account for purchases not held for the entire period. The total adjustment
is subtracted from the divisor in the performance calculation.
factor = days_not_owned/period_days
adjust = sum(buy_amt multiplied by factor)
18.7.2 Reinvested Distributions in Performance
In calculating performance return, Capital Gainz assumes any purchase
made on the same date as a distribution is a reinvestment.
reinvest_distr = distributions used to purchase shares
Because of the way Capital Gainz handles partial period holdings, this
results in slightly better performance than if the distribution and
purchase were added to their respective totals.
18.7.3 Performance Return and Rate
A total percentage is determined for the calculated return:
adjust = totals adjustments for partial period holdings
reinvest_distr = distributions used to purchase shares
net_buy_amt = buy_amt - adjust - reinvest_distr
total_period_return - reinvest_distr
return = ──────────────────────────────────── * 100
initial_value + net_buy_amt
or, if you included commissions in the basis:
total_period_return - reinvest_distr
────────────────────────────────────────────────── * 100
initial_value + net_buy_amt + buy_comm + sell_comm
begin_value = initial_value + net_buy_amt
end_value = begin_value + total_period_return
Also, an equivalent annual rate is determined:
end_value 1
rate = ( ─────────── ^ ───── - 1 ) * 100
begin_value years
18.7.4 Example - Performance
Let's look at an example using the Twentieth Century Vista mutual fund
between 1/01/90 and 12/31/91:
Capital Gainz Users Manual 18-13
begin_price = 8.51 on 1/08/90
initial_value = 307.99
end_price = 11.93 on 12/27/91
end_value = 1339.56
sell_amt = 510.00
sell_comm = 0.00
buy_amt = 1200.00
buy_comm = 0.00
distr = 0.00
fees = 10.00
(1339.56)
+ (510.00)
+ (-10.00)
- (307.99 + 1200.00)
──────────────────────
= 331.57 = performance
adjust = 963.77
reinvest_distr = 0.00
net_buy_amt = 1200.00 - 963.77 - 0.00 = 236.23
331.57
return = ──────────────── * 100 = 60.93%
307.99 + 236.23
begin_value = 307.99 + 263.23 = 544.22
end_value = begin_value + 331.57 = 875.79
875.79 1
rate = ( ───────── ^ ─── - 1 ) * 100 = 26.86%
544.22 2
18.7.5 Example - Adjustments
Calculating the adjustment for partial period holdings is somewhat
complex. Here's selected purchase information for the Twentieth Century
Vista example, which used a date range of 1/01/90 to 12/31/91:
...
9/07/89 Buy 5.834 shares at $8.57 for $50.00
(Sold on 8/06/90)
...
4/09/90 Buy 6.010 shares at $8.32 for $50.00
(Sold on 8/06/90)
...
6/07/90 Buy 5.495 shares at $9.10 for $50.00
...
The 9/07/89 purchase is before the first date of 1/01/90, so it's treated
as:
9/07/89 Buy 5.834 shares at $8.51 for $49.65
Capital Gainz Users Manual 18-14
The $8.51 price is the first price in the range. The specified range is
two years, or 730 days, and this purchase was only held from 1/01/90 to
8/06/90, a period of 218 days. (730 - 218 = 512 days not held.) The
adjustment is:
49.65 * (512/730) = 34.82
The 4/09/90 purchase is after the first date, and was held from 4/09/90 to
8/06/90, a period of 120 days (610 days not held). The adjustment is:
50.00 * (610/730) = 41.78
Finally, the 6/07/90 purchase was held from 6/07/90 to the 12/31/91 ending
date, a period of 573 days (157 days not held). The adjustment is:
50.00 * (157/730) = 10.75
The sum of the adjustments on purchases from 8/07/89 to 12/09/91 is
963.77. This adjustment and reinvested distributions are subtracted from
the total purchase amount to arrive at the net purchase amount used in the
performance return calculation.
18.7.6 Interpreting Performance
Any calculation that adjusts for partial periods understates potential
fluctuation, as well as risk. For instance, if you purchase 10 shares of a
security at $10 at the beginning of the year, 10 more shares at $5 in the
middle of the year, and the security is worth $10 at the end of the year:
With partial period adjustments:
Return : $200 - ($100 + $50) = $50
Return%: $50/($100 + ($50 - ($50 * .5))) = 40%
Without partial period adjustments:
Return : $200 - ($100 + $50) = $50
Return%: $50/($100 + $50) = 33%
However, had you invested all $150 at the beginning, you would have 0
return.
18.7.7 Internal Rate of Return
The rate of return calculated by Capital Gainz results in figures very
close to the Internal Rate of Return. In fact, a sample of 18 securities
showed the two rates to be within 1% of each other 17 times, and the 18th
case showed only a 1.5% difference.
18.7.8 Calculate Time in Performance
If you don't want to account for time in the performance calculation,
set Calculate Time in Performance to NO in the User Settings Form. If you
do this, the references to 'adjustments' no longer apply - but reinvested
distributions are still factored in. Performance percentages are
calculated as if all purchases occurred at the beginning and all sales
occurred at the end. This method is faster to calculate, but tends to
Capital Gainz Users Manual 18-15
understate gains/losses for securities with periodic investments.
If Calculate Time in Performance is NO, then the figures in the
previous example for the Twentieth Century Vista mutual fund would be:
adjust = 0.00
reinvest_distr = 0.00
net_buy_amt = 1200.00 - 0.00 - 0.00 = 1200.00
331.57
return = ────────────────────────── * 100 = 21.99% (was 60.93%)
307.99 + 1200.00
begin_value = 307.99 + 1200.00 = 1507.99
end_value = begin_value + 331.57 = 1839.56
1839.56 1
rate = ( ───────── ^ ─── - 1 ) * 100 = 10.45% (was 26.86%)
1507.99 2
18.7.9 Inactive in Performance
Performance figures for investments are complicated and misleading at
times, especially when time is factored in. First, a simple case to
explain the rationale used. Say you buy $100 of a fund on Jan 1, $100 on
July 1, and the value of shares owned at the end of the year is $220.
Without including time, the gain is 20/(100+100)=10%. The way Capital
Gainz accounts for time is to adjust the amount invested for the time
held. In this simple case, we adjust the second purchase by 1/2, or $50,
since it was only held for half the year. The resulting gain is
20/(100+100-50)=13.33%.
This is easy to follow. However, the adjustment is also applied in the
case where, say, you invest $100 on July 1, and have $110 at the end of
the year. From July 1 to Dec 31, you have a 10/100=10% gain. But, if you
request performance over Jan 1 through Dec 31, the amount is adjusted for
the 1/2 year not held. Thus, it's 10/(100-50)=20%, since you are asking
for the whole year's performance.
One final example. Say you buy $200 at the start of the year, execute
a sale for $110 on shares that cost $100, and show a value at the end of
the year of $110. Without adjustment, the gain is:
(10+10)/(100+100)=10.00%. But, we want to adjust for the shares sold
halfway through the year: (10+10)/(100+100-50)=13.33%. This 'looks' right -
you performed better than the fund, since it showed no gain in the second
half of the year.
By default, Capital Gainz always adjusts the amount to determine
performance, based on the time period. However, if you'd rather that
Capital Gainz ignore initial and final inactive periods, set Inactive in
Performance in the Report Settings to NO. The second example would always
report a 10.00% gain, while the other examples aren't affected.
Capital Gainz Users Manual 18-16
18.7.10 Total Portfolio Performance and Date Ranges
Because performance figures account for time that money is not
invested (unless you set Calculate Time in Performance to NO):
o If you request performance for all dates, individual security
performance is fine, but total portfolio performance is probably
distorted unless all securities are owned for similar periods.
o If you request performance for a large date range, the performance of
any securities not held for a significant part of the entire period may
be distorted. Total portfolio performance will also be affected in this
situation.
===>>> o If you keep the date range small, say one year, then both
security performance and the total portfolio performance will be
very good indicators.
18.8 Total Return vs Performance
===>>> Since the total return figure represents a buy-and-hold strategy,
you can compare it to whatever strategy you used over the period. If you
used dollar-cost averaging, then see if that worked better than a buy-and-
hold approach. For example, the total return for Twentieth Century Vista
from 1/1/90 to 12/31/90, was 40.19%, with a yearly rate of 18.40%. We saw
in the performance example that our performance during that same period
resulted in a return of 60.93%, with a yearly rate of 26.86%. Thus, the
timing of purchases and sales allowed us to do better than if we invested
everything at the beginning of the period.
If your actual performance was under par, but the total return is
good, then you've adversely affected your performance through bad timing.
The security is a good-performer, and should probably be held. This effect
is common for dollar-cost averaging strategies employed over a short
period in a rising market.
If your performance was good, but the total return is under par, then
you've managed to increase returns through good market-timing. While a
buy-and-hold strategy would not have done well, the market-timing effects
of your purchases and sales made this security a winner. This effect is
common for dollar-cost averaging strategies employed over a long period in
a fluctuating market.
===>>> Overall, total return is probably the most revealing of the two
figures, especially for mutual funds. It clearly shows whether a fund
performed well or not, regardless of any attempts at market timing.
Looking only at your actual performance, bad timing can hide good fund
performance, and good timing can hide poor fund performance.
18.9 Price History
Price history allows you to quickly view a security's prices for given
intervals. Distributions are shown to help you account for price dips,
since, for example, a $10 stock should fall to $9 after a $1 dividend.
Capital Gainz Users Manual 18-17
The high/low prices and dates, monthly average price, and
distributions per share over the period are included at the end of the
Price History Report. The individual high and low prices are flagged with
an H or an L. The monthly average price calculation was discussed earlier.
18.9.1 Example - Price History
Generally, you'd like to see a steady or gradually increasing price
for income producing securities. Here's a year's worth of prices for
Carolina Power and Light, an income-oriented utility stock:
Date Price Distribution/share
H 12/27/91 $52.6250
11/27/91 $49.6250
11/01/91 DIV $0.7600
9/28/91 $49.1250
8/31/91 $47.3750
8/01/91 $47.4200
8/01/91 DIV $0.7600
7/27/91 $47.0000
6/29/91 $45.6250
6/01/91 $46.2500
5/02/91 $48.0580
5/02/91 DIV $0.7600
3/30/91 $47.5000
3/21/91 $47.2500
3/18/91 $47.8070
3/04/91 $47.2420
L 2/01/91 $45.2920
2/01/91 DIV $0.7600
1/02/91 $46.6520
High: $52.6250 on 12/27/91 Monthly Avg : $47.8266
Low: $45.2920 on 2/01/91 Distribution: $3.8000
For growth securities, you'd like to see more of a general up-trend to
make up for their lack of regular dividends.
18.10 Portfolio Allocation
The Portfolio Allocation Report gives you a quick look at how your
investment dollars are spread out. Thus, you can see if you're being
conservative or risky, and weigh this against your feeling on where the
market's headed.
Determining factors for your portfolio's weightings include how much
cash you need, how old you are, and your bullishness or bearishness on the
market. One rule of thumb is: the shorter term your needs are, the more
conservative you should be. If you are older and will soon need the cash
for retirement, a market downturn would be catastrophic for an aggressive
growth-oriented portfolio. However, this same market downturn would be
unwelcome, but not devastating, to a young investor. This younger investor
has time on his side, and will have many chances to recoup any losses and
ride the market back up.
Capital Gainz Users Manual 18-18
18.10.1 Example - Portfolio Allocation
Here's an example of a moderately aggressive portfolio:
────────────────────────────────────────────────────────────
Local Security Value Pct
────────────────────────────────────────────────────────────
FPDLI Fin Prog Daily Income $14,372.76 28.17%
PFZ Pfizer Inc. $6,308.81 12.36%
CPL Carolina Power & Light $6,240.85 12.23%
FPTXF Fin Progress Tax Free $5,082.13 9.96%
NUVNC Nuveen NC Tax Free Trust $4,838.26 9.48%
GRACE W.R. Grace $3,848.53 7.54%
FPINC Fin. Prog. Industrial Inc $3,034.27 5.95%
PSNC Public Srvc Co of NC $2,808.68 5.50%
KRG The Kroger Co $1,806.82 3.54%
FPEUR Fin. Prog. European $1,348.78 2.64%
VISTA 20th Century Vista $1,339.56 2.63%
────────────────────────────────────────────────────────────
Security Type Value Pct
────────────────────────────────────────────────────────────
LCS Large Company Stock $18,205.01 35.68%
MMF Money Market Fund $14,372.76 28.17%
TFBF Tax Free Bond Fund $9,920.39 19.44%
LCSF Large Company Stock Fund $3,034.27 5.95%
SCS Small Company Stock $2,808.68 5.50%
FSF Foreign Stock Fund $1,348.78 2.64%
SCSF Small Company Stock Fund $1,339.56 2.63%
────────────────────────────────────────────────────────────
Security Class Value Pct
────────────────────────────────────────────────────────────
Stock $21,013.69 41.18%
Cash $14,372.76 28.17%
Bond Fund $9,920.39 19.44%
Stock Fund $5,722.61 11.21%
Total $51,029.45 100.00%
More than 40% of the portfolio is in stock holdings, 28% is in cash, and
the rest is in stock and bond mutual funds.
Capital Gainz Users Manual 18-19
