Portfolio Cost %


Recently, a user reached out and asked a question:

Portfolio Cost Yield is calculated as:
Portfolio Cost Yield = Sum(Cost Yield x Portfolio %)
I’d like to understand why “Portfolio %” was used instead of “Portfolio Cost %”.

This is a great question, and honestly when I first implemented it, I did not think too deeply into it. Hence I decided to discuss more with that user.

Let’s use an example to illustrate the difference. Take for example I have one share of stock A that I bought for $10 and it is now worth $100 and gives $10 dividends yearly. I also have a share of stock B that I bought for $100 and is still $100 and gives $10 dividends. Therefore, Cost Yield % for stock A and B are 100% and 10% respectively.

If we use Portfolio %:
Portfolio Cost Yield = 100% x 100 / 200 + 10% x 100 / 200 = 55%

If we use Portfolio Cost %:
Portfolio Cost Yield = 100% x 10 / 110 + 10% x 100 / 110 = 18.18%

Note that this is also simply 20 / 110 or Total Dividends / Total Portfolio Cost.

Which then, is a better number to reflect Portfolio Cost Yield?

After some discussion, we both agree that 18.18% is the better number for the following reasons:
1) By definition, Cost Yield = Dividend / Cost hence Portfolio Cost Yield = Total Dividends / Total Portfolio Cost makes better sense.
2) Upon the purchase of the investment, the cost involved is deemed to have been “sunk” into the investment. From that point on, any increase/decrease in market value of the investment should not affect the computed cost yield.

This change is already reflected in StocksCafe. Thank you as always for helping make StocksCafe better!

ps: On an unrelated note, but in case you have not realised, Webull recently up-sized their signup bonus to USD150 cash. See this article for more details.

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Evan Koh



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