The Lemon Fool

I've only ever sold a couple of shares because I'm a long-term buy and older, so forgive me for asking a stupid question:

If I buy 10 shares for £10 each I have invested £100. If the price then goes up to £100 a share, and I sell £100 worth (so I now have 9 shares), how much do I now have invested?

£90 in the remaining 9 shares, worth £900.

Others look at things differently and assume their original cost is covered and they are then in for a free ride.

I've always considered this from an economist's point of view:

You: What is 2 + 2?
Economist: What do you want it to be?

1. You spent £100 in total, you received £100, so your net cost is zero
2. You bought 10 shares for £10 each, have sold one so you now have 9 shares at a cost of £10 each
3. You invested £100 and nothing can change that, notwithstanding the fact that you have received a return

You choose!

--kiloran

Gilgongo wrote:I've only ever sold a couple of shares because I'm a long-term buy and older, so forgive me for asking a stupid question:

If I buy 10 shares for £10 each I have invested £100. If the price then goes up to £100 a share, and I sell £100 worth (so I now have 9 shares), how much do I now have invested?

You have £100 invested in cash and £900 invested in shares, so £1000 in total.

GS

From a (Capital Gains) tax perspective, however, the averaged base cost is used to calculate tax liability.

kiloran wrote:You spent £100 in total, you received £100, so your net cost is zero
You bought 10 shares for £10 each, have sold one so you now have 9 shares at a cost of £10 each
You invested £100 and nothing can change that, notwithstanding the fact that you have received a return

OK so I think I see. I was wanting to have some kind of expression of how my initial capital expenditure had performed.

So perhaps a practical way of looking at it is that I bought 10 shares for £10 each, have sold one so I now have 9 shares at a cost of £10 each (or maybe the average price of the shares, if I'd bought them in tranches at different prices?)

Do other people use this as a "performance" measure?

I use total return, as those shares produce dividends too. How do you deal with dividends, spend or buy new shares occasionally?

Gilgongo wrote:OK so I think I see. I was wanting to have some kind of expression of how my initial capital expenditure had performed.

Your OP asked: "how much do I now have invested?"

I don't think we are clear yet on what your aims are.


Cost of your shares has very little to do with what you have invested now. Your current investment is the total value of all your assets using some measure (you chose pounds sterling). The value of the shares is the amount of cash in pounds you'd receive if you were to sell them. The value of the cash is its face value. So as I said value of your current investments is £100 in cash and £900 in shares.

GS

Gilgongo wrote:OK so I think I see. I was wanting to have some kind of expression of how my initial capital expenditure had performed.

That's a slightly different question. The clossest answer so far would be the one where you have £100 cash and shares currently worth £900 giving a current total of £1000.

If you want performance you can choose a formula, all spreadsheets provide them, and calculate the performance. Either capital growth, total return, investment life etc.

Start by looking at XIIR which can provide a percentage figure of either capital growth or total return.
ie
https://www.techonthenet.com/excel/formulas/xirr.php

NOTE, the formula doesn't provide sensible results over short periods. I'd only place any faith in it after two years.

You place the current value as a negative number with the current date at the top and record all purchases, sale's and possibly dividends (depending on intention) below with their dates.
They don't have to be in order, so always insert lines in the middle of your table to add a new record. If you want it to look tidy do a sort after adding your record. That way the formula automatically adjusts for the new record.

I use google sheets as a spreadsheet and the googlefinance function to get the current price of the shares that I own to calculate the current value and hence XIIR for capital growth.
https://www.howtogeek.com/449743/how-to ... le-sheets/

I also use the excelant HYPTUSS spreadsheet, which could have additional sheets added to provide the same function.
http://lemonfoolfinancialsoftware.weebly.com/

However you do need to be clear what you wish to know.

Like I said, I work out capital growth. Others would argue that I should be calculating total return. Ie growth + dividends.

Consider pensions.
While contributing you are interested in judging the performance as total return, any dividends will be reinvested.

Once retired you need those dividends to live upon. Total return is probably now the wrong thing to judge things and you may wish to calculate how long the pot will last, given a realistic estimate of any capital growth and outflows.

GoSeigen wrote:However you do need to be clear what you wish to know.

I ask mainly because I was looking at likely strategies in draw down, and see that in general when taking income that isn't simply from dividends, the advice is to sell from assets that have done best over a period (eg last 6 months). So it got me thinking about how to measure that. It seems a simple XIIR would work in that scenario - am I correct?

G

Gilgongo wrote:So it got me thinking about how to measure that. It seems a simple XIIR would work in that scenario - am I correct?

If you just want to see what's done well over a period, having a detailed portfolio list at the start and end of the period would do this and you just compare values. That would exclude dividends, if you wanted them as well, a separate record of dividends would be needed.

People selling for income withdrawal will also look at the balance of their portfolio. Are they excessively exposed either in terms of income or capital to the results of a single stock or sector? If so, that can dictate what they look at for selling.

Dare I suggest unitisation?


http://lemonfoolfinancialsoftware.weebl ... folio.html

staffordian wrote:Dare I suggest unitisation?

Interesting. What would be the advantage of that over simple before/after values over time? Don't forget I'm looking at this from the POV of choosing which share to draw down on, not dividend income.

Gilgongo wrote:

staffordian wrote:Dare I suggest unitisation?

Interesting. What would be the advantage of that over simple before/after values over time? Don't forget I'm looking at this from the POV of choosing which share to draw down on, not dividend income.

To be honest, in that context, it would probably be of little benefit. I think it's probably of more use when comparing one portfolio with another than evaluating individual shares.

XIRR calculations would probably be the best option, as others have suggested.

I don't see why it isn't possible to unitise individual shares, to take account of any or all buys and sells, (and optionally, dividends if you wish to) then by comparing current unit price of each share you could use it to determine the best performer. But it's probably overkill.

staffordian wrote:But it's probably overkill.

Well, you do need things to do in retirement!