Portfolio Changes: Current Cost vs Closed Cost

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Wrong Total Cost
Recently, a user highlighted that Total Cost in StocksCafe was computed wrongly and he (I assumed it’s a he based on the username) is correct. I previously computed Total Cost as “Sum of [buy price x number of shares] for each stock currently in portfolio”. However, this is inaccurate as he has pointed out, and I agree.

Therefore I have changed the definitions of Total Cost and also introduced new terms:
Current Cost (or Current Positions Cost), and
Closed Cost (or Closed Positions Cost).

New Definitions
Current Cost = “Sum of [buy price x number of shares] for each stock currently in portfolio”

Closed Cost = “Sum of [buy price x number of shares] for each closed positions”

Total Cost = Current Cost + Closed Cost

Why Does It Matter?
These changes mostly affect the way percentages of various values are computed. For example, previously, “P&L + Dividends + Closed” percentage was computed based on Current Cost (previously Total Cost) and this inflates the percentage. In the extreme case, if you earned one dollar on your closed positions and you have no open positions in your portfolio, your cost would be zero, and your percentage gain would be 1 / 0 = infinite percentage gain.

Therefore, I believe, the correct approach should base “P&L + Dividends” on Current Cost, “Closed” on Closed Cost and “P&L + Dividends + Closed” on Total Cost. You can already see these changes in your portfolio percentages computations.

As always, I’m thankful to all users who are constantly helping StocksCafe become better!

Happy investing!

13 Comments

Leave a Reply to kpo Cancel reply

  • Hi Evan
    I notice I have not been placed under Friends of Stock Cafe anymore.
    In fact, I donated $50.00 direct to your POSB A/c a few months back, n had not received an acknowledgment.
    TQ n have a nice day.

  • Hi Mark,

    My apologies. I do not constantly check my bank account 🙁

    Yes, I just checked. You did donated SGD50 on 30th April.

    I have updated that.

    Thanks,
    Evan

  • This is better but not correct. Look at my portfolio (mithuprem) and my wife (mithusur) portfolio. She didn’t sell any stocks so her return is 24%, I usually buy and sell a lot. Eventhough I have made double her money my return is 12.5%. So the return is inflated for those who dont sell and depressed for those buy and sell often.

  • Hi Evan,

    Your new total cost is still inaccurate as people would reinvest their realised gains into new counters.

    For example:
    Portfolio of only Stock A,
    Total cost $100k, Current Value $500k.
    Sell $400k worth of Stock A and buy $400k worth of Stock B.

    The net effect of this recycling of cash would increase your new total cost to $420k, when in actual fact there is no net change in total cost from the investor’s perspective, less commission and fees.

  • @mithuprem

    “She didn’t sell any stocks so her return is 24%, I usually buy and sell a lot. Eventhough I have made double her money my return is 12.5%.” => What is currently being computed is returns on cost. How much returns are earned/lost based on given cost.

  • @smallfry

    I see what you are suggesting. In the portfolio overall, what I am computing are returns on cost. What are the percentage returns obtained on give cost. To consider only the original capital, I believe time-weighted returns and XIRR currently computed in the portfolio report would be closer to what you are suggesting.

  • Evan understood. But its not comparable. I want something comparable in the shared portfolios so that I can choose the best performing portfolios to view and compare it with my one.If my portfolio is under performing I want to know why is it so..Is it possible to add a column for Time-weighted Returns in the shared portfolio page. Current (P&L +DIV + Cls) % doesn’t make sense to me.

  • Yes, I agree on the point that it is not comparable. Will add Time-weighted and/or XIRR to shared portfolio and maybe also portfolio overall.

  • Hi Evan,

    I agree with mithuprem that “the return is inflated for those who dont sell and depressed for those buy and sell often”. The previous calculation for “P&L + Dividends + Closed” gave an indication of how much your return is based on the current cost. At one glance, one would be able to tell my total return since I started investing is X% based on my current cost which is much more intuitive.

    However, looking at my current return for “P&L + Dividends + Closed”, it does not make sense anymore. For the same amount of money invested and the same amount of gain. The returns are different. An example:

    Portolio X
    $100 on stock A:
    – $1 gain on PnL
    – $1 dividend

    Total Cost = Current Cost ($100)
    “P&L + Dividends + Closed” = 2/100 (2%)

    Portolio Y
    $100 on stock A:
    – $1 dividend
    – Sell A
    – $1 closed/realized
    – Buy A

    Total Cost = Current Cost ($100) + Closed Cost ($100)
    “P&L + Dividends + Closed” = 2/200 (1%)

Evan Koh

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