Investment Performance - A how-to

Tod · January 2006

On a dreamlike premise that this might help someone better understand to significance of some of the nuances of investment I offer the following information centered around a real-life (slightly simplified) example.
Scenario: Bought stock in May 04, received quarterly dividends, price fluctuated. What do the numbers mean?
Data:

Bought 5/4/04 for $6300
Received $40 Div on 15th of Feb, May, Aug, and Nov. beginning Aug 04 - 6 dividends so far total $240.
Price valuations on key dates
5/4/04 = 6300
12/31/04 = 6997.50
1/21/05 = 6900
1/20/06 = 6214.50

I begin looking at Portfolio View data with the Option-Preferences set to "Entire History".
As of 1/20/06 the view shows:

Cost Basis: 6300
Amount Invested: 6300
Amount Reinvested: 0
Market Value: 6214.50
Gain/Loss: -85.50 Difference of Mkt Val from Cost Basis
Gain/Loss%: -1.36% = -85.50/6300
Return: +154.50 = 240 Div less 85.50 CG Loss
ROI%: +2.45% = the 154.50 return / 6300 Basis /// NOT annualized,
Avg Ann Ret (1Yr)% = -7.71% -- This value is derived from the value one year ago (1/20/05 = $6900) and also considers the $160 of dividends received during that one year.

The standard investment performance report set for the entire history (5/4/04 to 1/20/06) reports an average annual return% of 1.45%. This value compares with the ROI% in the Poirtfolio view EXCEPT that this value is annualized while the ROI% cited above is not. The full-term 2.45% ROI% covers a 20-month period_ the 1.45% is the "12-month" version of that same return.
Now let's say that we alter the Portfolio view preferences such that we are looking at returns since 1/1/05, a little over a year long period.
The view now shows as of 1/20/06:

Cost Basis: 6300 (unchanged)
Amount Invested: 6997.50 (1/1/05 value)
Amount Reinvested: 0 (unchanged)
Market Value: 6214.50 (unchanged)
Gain/Loss: -85.50 Difference of Mkt Val from Cost Basis (unchanged)
Gain/Loss%: -1.36% = -85.50/6300 (unchanged)
Return: -623 = 6214.50 + 160 - 6997.50 = What you have less what it was on the beginning date
ROI%: -8.90% = the -623 return / 6997.50
Avg Ann Ret (1Yr)% = -7.71% (unchanged)

The printed Investment Performance Report for the period from 1/1/05 to 1/20/06 yields an Average Annual Return of -8.56%. Again, this is the 12-month version of the -8.90% ROI in the portfolio view. If the dates on this report are adjusted to 1/20/05 to 1/20/06, the reports shows the same -7.71% return as shown in the Portfolio view.
Finally, if you take the cash-flow stream

5/4/04 6300
8/15/04 -40
11/15/04 -40
2/15/05 -40
5/15/05 -40
8/15/05 -40
11/15/05 -40
1/20/06 -6214.50

into Excel and process it with the XIRR function, I get a IRR value of 1.45% which matches the value in the Investment performance report for the Entire History of this security.
So, what do these is numbers mean (beyond it's been a less than stellar investment? Looking at performance can provide a broad mixture of results. Intuit seems to have tried to offer something for everyone (yet far less than everyone is satisfied, unfortunately). As I have opined elsewhere, it is important to understand what you are looking at (does it include dividends?, what period is covered?, is it annualized?) and generally important to compare apples-to-apples, especially when later comparing your Q-reported figures to outside figures. Hope this helps someone else. As always, I learn just in trying to explain some of this.

Unknown · January 2006

Excellent job, Tod. Thanks. I'm sure many of us are going to refer to this for future reference._____________________MikeB

Unknown · July 2006

Thanks for posting such a comprehensive explanation. I tried to replicate your example and matched all but your average annual return calculations. Any ideas on why my average annual return shows -9.01% vs your -7.71%? Also, why is the security return different than the account return -9.01% / -8.79%. Thanks

Tod · July 2006

> Thanks for posting such a comprehensive explanation.
> I tried to replicate your example and matched all
> but your average annual return calculations.  Any
> ideas on why my average annual return shows -9.01% vs
> your -7.71%?  Also, why is the security return
> different than the account return -9.01% / -8.79%.
>  Thanks
Your DL example didn't come through so I can't really say why your numbers are different.  Maybe dates that are involved?
Re the account and security difference, I have not looked at that in detail per this example.  I have noticed the trait in the past IIRC.  I think I determined that because the account carries the cash from the dividends, its returns tended to be a little different.  While the security ends with one value, the account ends with a little higher value.  If I get a chance to check further and note any differences, I'll post back.Hope this helps--Tod --- Know the calculations before drawing conclusions.

Unknown · July 2006

I tried scanning the file and re-attaching it. Let's see if that works. Thanks for the help!

Tod · July 2006

Apparently I mistyped a date. The $6900 value applies to 1/20/05 as used later in the text_ not 1/21/05 as initially presented. Your -9.01 AAR% results from the change of value from 6997.50 to 6214.50. The 6997.50 value was applicable on 12/31/04 and Q would assume that to still be applicable on 1/20/05 lacking other intermediate data. The Account AAR% is affected by two additional factors (maybe more): the opening balance and the dividends. With an opening balance of $6300 (effectively your setup) and dividends left in the account, the account AAR% becomes -7.52% vs the security's -7.71%. If the dividends are entered as DivX transactions, both data points go to -7.71%. Thanks for the check. Hope this helps.--Tod --- Know the calculations before drawing conclusions.

Unknown · July 2006

Thanks for the clarification. I changed the date to 1/20/05 (from 1/21/05)and acheived -7.71%. What is a DivX transaction? and how do you enter it? I have seen DivX show up for downloaded transactions but do not see the feature available in the drop down list. Thanks for the help.

Tod · July 2006

DivX is a dividend that is immediately transferred to another account - usually a checking account. In older editions, one could enter the transaction directly. In Q2005, you just need to fill in the 'Transfer to' field.--Tod --- Know the calculations before drawing conclusions.

Unknown · February 2007

> On a dreamlike premise that this might help someone> better understand to significance of some of the> nuances of investment I offer the following> information centered around a real-life (slightly> simplified) example. > > Scenario: Bought stock in May 04, received quarterly> dividends, price fluctuated. What do the numbers> mean?> > Data: > Bought 5/4/04 for $6300> Received $40 Div on 15th of Feb, May, Aug, and Nov.> beginning Aug 04 - 6 dividends so far total $240.> Price valuations on key dates> 5/4/04 = 6300> 12/31/04 = 6997.50> 1/21/05 = 6900> 1/20/06 = 6214.50> > I begin looking at Portfolio View data with the> Option-Preferences set to "Entire History".> > As of 1/20/06 the view shows:> Cost Basis: 6300> Amount Invested: 6300> Amount Reinvested: 0> Market Value: 6214.50> Gain/Loss: -85.50 Difference of Mkt Val from Cost> Basis> Gain/Loss%: -1.36% = -85.50/6300> Return: +154.50 = 240 Div less 85.50 CG Loss> ROI%: +2.45% = the 154.50 return / 6300 Basis> /// NOT annualized, > Avg Ann Ret (1Yr)% = -7.71% -- This value is derived> from the value one year ago (1/20/05 = $6900) and> also considers the $160 of dividends received during> that one year.> > The standard investment performance report set for> the entire history (5/4/04 to 1/20/06) reports an> average annual return% of 1.45%. This value compares> with the ROI% in the Poirtfolio view EXCEPT that this> value is annualized while the ROI% cited above is> not. The full-term 2.45% ROI% covers a 20-month> period_ the 1.45% is the "12-month" version of that> same return.> > Now let's say that we alter the Portfolio view> preferences such that we are looking at returns since> 1/1/05, a little over a year long period. The view> now shows as of 1/20/06:> Cost Basis: 6300 (unchanged)> Amount Invested: 6997.50 (1/1/05 value)> Amount Reinvested: 0 (unchanged)> Market Value: 6214.50 (unchanged)> Gain/Loss: -85.50 Difference of Mkt Val from Cost> Basis (unchanged)> Gain/Loss%: -1.36% = -85.50/6300 (unchanged)> Return: -623 = 6214.50 + 160 - 6997.50 = What you> have less what it was on the begining date> ROI%: -8.90% = the -623 return / 6997.50 > Avg Ann Ret (1Yr)% = -7.71% (unchanged)> > The printed Investment Performance Report for the> period from 1/1/05 to 1/20/06 yields an Average> Annual Return of -8.56%. Again, this is the 12-month> version of the -8.90% ROI in the portfolio view. If> the dates on this report are adjusted to 1/20/05 to> 1/20/06, the reports shows the same -7.71% return as> shown in the Portfolio view.> > Finally, if you take the cash-flow stream> 5/4/04 6300> 8/15/04 -40> 11/15/04 -40> 2/15/05 -40> 5/15/05 -40> 8/15/05 -40> 11/15/05 -40> 1/20/06 -6214.50> into Excel and process it with the XIRR function, I> get a IRR value of 1.45% which matches the value in> the Investment performance report for the Entire> History of this security. > > So, what do this numbers mean (beyond it's been a> less than stellar investment? Looking at performance> can provide a broad mixture of results. Intuit seems> to have tried to offer something for everyone (yet> far less than everyone is satisfied, unfortunately).> As I have opined elsewhere, it is important to> o understand what you are looking at (does it include> dividends?, what period is covered?, is it> annualized?) and generally important to compare> apples-to-apples, especially when later comparing> your Q-reported figures to outside figures. > > Hope this helps someone else. As always, I learn> just in trying to explain some of this.Hi Tod,Thanks for this post (with the typo correction). It is very helpful! I hope you have time to spare me a couple of more questions as follows (after reading several of the other posts):1) Perhaps this is because I am using Deluxe 2007, but I see in my portfolio view ROI% and Return % (in the different flavors such as YTD, 3 yr, etc). Do you know how these two percents differ?2)If I understand correctly from reading some of your other posts, the ROI% YTD is actually downloaded in spite of the fact that the help information indicates it is based on "your transactions". Did I get this right?3)Is the Average Annual Return % generally the same percent as what the mutual funds use to calculate "returns". If this is the case, then is it safe to assume this percent in quicken should be the same as reported by a mutual fund, assuming no additions or reductions in the investment have been made.Thanks for any help you can shed on this.

Tod · February 2007

> Hi Tod,> Thanks for this post (with the typo correction). It> is very helpful! > I hope you have time to spare me a couple of more> questions as follows (after reading several of the> other posts):> 1) Perhaps this is because I am using Deluxe 2007,> but I see in my portfolio view ROI% and Return % (in> the different flavors such as YTD, 3 yr, etc). Do you> know how these two percents differ?> 2) If I understand correctly from reading some of your> other posts, the ROI% YTD is actually downloaded in> spite of the fact that the help information indicates> it is based on "your transactions". Did I get this> right?No. I believe I have positted that Return% is downloaded and ROI% is based on data in your file. But I have never gotten any confirmation of this. Return% seems to be my nemesis. Hopefully ROI% is clear from above.> 3) Is the Average Annual Return % generally the same> percent as what the mutual funds use to calculate> "returns". If this is the case, then is it safe to> assume this percent in quicken should be the same as> reported by a mutual fund, assuming no additions or> reductions in the investment have been made.> Thanks for any help you can shed on this.I have never made sufficient comparisons to satisfy myself that your premise is correct. Seems like it should be or should be close. I've just never made the one-to-one, apples-to-apples comparison. It does seem to me that data I have seen in the past from funds themselves, Morningstar, Money Magazine and the like have always presented slightly different figures. If that is the case, no reason Q can't rationally compute different numbers as well. Hope this helps--Tod --- Know the calculations before drawing conclusions.

Unknown · February 2007

Thanks again. I hope quicken compensates you for your time somehow?

Tod · February 2007

> Thanks again. I hope quicken compensates you for your> time somehow?Not me. A shrink would probably have some long name for the time I spend online and on-Quicken. I do find participation educational - sometimes good educational and sometimes not. Good Luck--Tod --- Know the calculations before drawing conclusions.

jr7107 · February 2007

> Not me. A shrink would probably have some long name> for the time I spend online and on-Quicken. I do> find participation educational - sometimes good> educational and sometimes not. Tod, we coined the term "Quicken OCD - Quicken Obsessive Compulsive Disorder". I prefer "fiscally responsible", but OCD probably is closer to reality

--JRMore details and specifics are always helpful to eliminate the need for assumptions in the response.

Unknown · September 2007

Quote:" Investment Performance - Will this help?: On a dreamlike premise that this might help someone better understand to significance of..."As far as I know all revisions of all versions of Quicken present incorrect (and sometimes wildly incorrect) return information on the Investment Center Portfolio tab. You can demonstrate this with a simple example that produces a gross distortion I'll explain in a minute. The danger is that Quicken's inaccurate calculations seem plausible sometimes if the scenario is complicated.Intuit knows about the problem. I've reported it several times. But Intuit doesn't warn users or correct it as far as I know. If anyone knows that to be wrong, please let me know.Okay, here's how to demonstrate the absurdity of relying on Quicken to calculate performance.1. Create a test brokerage account and buy 100 shares of a company like EMC Corp (symbol: EMC) that doesn't pay dividends. The absence of dividends will make the error in the calculation more obvious. Use a purchase date of at least one year before now.2. Use Quicken to download historical prices.3. Looking at the security detail, divide the price today by the price one year ago. Subtract 1 to get the percentage increase in price. Since the security has distributed no profit, that percentage represents the return. Since you're talking about one year, there can be no confusion about compounding.4. Now go to the portfolio page and display all the one-year kinds of return. At least some of them will be different from the number you calculated. To give you an idea of how different consider that I just now took the EMC price from 9/8/06 ($11.42) to 9/6/07 (19.39). That's a 69.8 percent increase over the year ending today. But Quicken 2005 latest revision shows . . .Return (%) 1-Year = 5.39%Average Annual Return (%) 1-Year = 70.39%ROI(%) 1-Year = 70.39%The last two numbers are fairly close, but take a look at the first.The only reason the error is obvious is because there are no dividends and because you're looking at the change for exactly one year. If the situation were more complicated, you probably wouldn't notice the discrepancy.

Bob_L · September 2007

Quote:" Investment Performance - Will this help?: As far as I know all revisions of all versions of Quicken present incorrect..."Jay,Interesting, and I was able to confirm it still is the same in the 2007 version. I think I recall some threads in the past, however, saying that the % return 1 year columns etc. were not calculated from Data within Quicken but provided via downloads from an external provider. While that is certainly not an excuse it may be an explanation, though 2 years should be enough time to get it right! Be interesting to see if anyone else, or even better someone from Quicken, wants to help clarify this situation.Bob L.

Unknown · September 2007

Quote:" Investment Performance - Will this help?: Jay, Interesting, and I was able to confirm it still is the same in..."Bob,The mystery gets better if you go to the Performance tab, then the Growth of $10,000 and then put in your own dates (choose custom dates at the bottom - not one of the intermediate custom dates) and choose say 2 or more years worth of plotting. Then check the comparisons such as S&P500, NASDAQ, etc. You will see your performance but the others will be flat except for the Russell 2000. Play with the various date options and you'll see that there are even MORE bugs in the program such as choosing your own starting date and it puts in 1/1/07. The ONLY time that the graph appears to have "some valid info" is when you choose 1 yr.I guess most people only care about 1 yr and not the overall performance or specific dates ranges.Intuit is aware of this. I walked the Tech Support through the process step by step for him to see exactly what I meant. The latest interesting glitch is updating your portfolio on Quicken.com. It doesn't update or update correctly.George

Unknown · January 2008

I have a real life example of an error in the investment performance report. This is very discouraging becasue it undermines any confidence I have in that report for any investment. Unfortunately, I like to use this report to see how I am doing.February 2007 I opened a new brokerage account with the specific purpose of using covered calls based on a specific investment letter I subscribed to .I started with 100,000. There have been many transactions, including a few dividends, but mostly buying stock, selling calls against that security and then either having the security called or the option expires worthless and then I own the stock. As of today, my portfolio is worth about 109,000(quicken value which is very close to brokerage account value). If I run a report using earliest to date time frame, I get a portfolio value of 45,173. or a loss of about 58%. Obviously the market value figure that Quicken cames up with is wrong, and I have no idea where it comes from. I like using earliest to date because I have been using Q sincce the late 80's and have some investments that I bought during the90's. Now I wonder if any of my returns are shown accurately.

Tod · January 2008

I have a real life example of an error in the investment performance report. This is very discouraging becasue it undermines any confidence I have in that report for any investment. Unfortunately, I like to use this report to see how I am doing. February 2007 I opened a new brokerage account with the specific purpose of using covered calls based on a specific investment letter I subscribed to._ I started with 100,000. There have been many transactions, including a few dividends, but mostly buying stock, selling calls against that security and then either having the security called or the option expires worthless and then I own the stock. As of today, my portfolio is worth about 109,000(quicken value which is very close to brokerage account value). I'd ask myself why they don't match to the penny.If I run a report using earliest to date time frame, I get a portfolio value of 45,173. or a loss of about 58%. But you just said your "Quicken value" is very close to the $109,000 figure._ You are not accurately stating what you are seeing and that makes it difficult for others to accurately comment.Obviously the market value figure that Quicken cames up with is wrong, and I have no idea where it comes from. I like using earliest to date because I have been using Q sincce the late 80's and have some investments that I bought during the90's. Now I wonder if any of my returns are shown accurately.There should be no problem associated with earliest-to-date reports._ I don't trade in options so I can't comment on that aspect, but I have noticed many questions and comments about the 'right' way to enter those transactions._ I suspect that is the source of your apparent error._ Please be as accurate as possible in describing what reports, portfolio views, transaction types etc, that you are using.

Unknown · January 2008

I use the download feature to update my transactions. Prior to about Q2005 my Q and brokerage account statements were right on. For the past couple of years, not so!. I just go in and make an adjustment to make them match. If it is a large amount I will go back and try to find the difference. It is usually a duplicate download that may go back months. I posted previously about a problem when I download a new stock, that the wrong stock name is downloaded. A suggestion was made, but has not helped.When I said my Q value was close to my brokerage statement I was referring to the portfolio value matching the brokerage statement(market Value). When I run the report, the ending value was 45,173. The report shows the beginning value of 100,000. You are right in that the cause may have something to do with the "downloads" as my other accounts don't seem to have such a discrepancy.A covered call transaction is really a short sale which expires(buy it back at $0 at expiration) and you either end up holding the stock or sell it. These are not complicated transactions.I should probably give up trying to doenload and just enter manually, but it is too bad not to be able to use the feature since there are a lot of transactions. I have gotten quite sicouraged with Q in the past few years. It looks like I am not the only, having read some of the posts.Thanks for your response

Unknown · January 2008

I just found another similar example. I have another account which consists of only 4 mutual funds. Not many transactions, just a few dividend reinvestments. The market value(portfolio view)(which matches the brokerage statements were 12/31/06 64,147 and 12/31/07 71,115. When I run the performance report for "last year", the report shows begining market value as 140,547 and an ending market value of 147,515 a dollar difference of 6969,the same difference as the actual amount difference. The significant difference is the %. The true return was 10.8% whereas the report shows a return of 4.9%, further shaking my confidence in Quicken's reports for measuring returns. I tried using custom dates rather than "last year" and got the same results.

Tod · January 2008

I just found another similar example. I have another account which consists of only 4 mutual funds. Not many transactions, just a few dividend reinvestments. The market value(portfolio view)(which matches the brokerage statements were 12/31/06 64,147 and 12/31/07 71,115. When I run the performance report for "last year", the report shows begining market value as 140,547 and an ending market value of 147,515 a dollar difference of 6969,the same difference as the actual amount difference. The significant difference is the %. The true return was 10.8% whereas the report shows a return of 4.9%, further shaking my confidence in Quicken's reports for measuring returns. I tried using custom dates rather than "last year" and got the same results. So the problem is in the Investment Performance Report._ If you look at the Portfolio Value report for the same two time points, what values do you see?_ If you look at the Inv. Performance Report for the 'Include All Dates" does it start at $0 for that account?_ Can you change the starting point to see when the discrepancy arises?_

Unknown · January 2008

you may have come up with the problem. It looks like it goes back years when I added some securities to the account, usung the original costs.I used the add security transaction toget some very old securities into the account, using the origianl costs. I'm still not sure why this should affect current "market value' figures for the report.

Tod · January 2008

I'm still not sure why this should affect current "market value' figures for the report. Nor do I._ You may need to examine the price histories for those securities to see if they really are getting updated and that may raise questions about your portfolio view - how that might have been customized._ You may also want to try deleting and re-entering the entry transactions._ I'd suggest making a good backup first._ (If you have sold some of those shares and did not use Quicken's default FIFO for lots, you should check results after the re-entry)._

Unknown · January 2008

The last of those old stocks were sold several years ago. I don't think I will bother trying to figure out where the specific error lies. It's just too bad that I wont be able to rely on the performance report to tell me how I am doing. I've got 2 accounts now where the incorrect market value appears at both ends of the performance report. There are probably more. What I have done in a few cases is set up a separate dummy account in which I make up an immaginary security showing 1 share with a price of the value of the account. Then I can update it with a current market value. From that I can determine my return.Problem is that it will only work if there are no additions or withdrawals of cash from the account. Sometime I may try to figure that issue out. Maybe I can fool the Quicken report some way. In most ways I like using Q, but, as I have mentioned in a couple of my posts, since about Q 2005 I've had more problems. Sometimes I think I would like to try another program, such as Money, but the work of converting is probably not worth it.

Unknown · January 2008

I have no confidence in the performance numbers. For example, the return YTD for SPY 50 shares is -400 to -500, however the Return YTD (%) is +2%. It appears the return number itself is correct(?), but the Return YTD(%) is WRONG!! There are no transaction in the account for the month, so it should just use downloaded quotes which are correct, and the # of shares owned. Did 2008 fix this? Was this ever correct in the past? I've used since 93 and cant believe this. How is this possible??? Does anyone know if Money has this problem? Can I use both Quicken and Money with my online accounts until I decide which one is better? Thanks

Tod · January 2008

I have no confidence in the performance numbers. That is a pretty broad conclusion to draw based on what you cite._ Note my signature line - Know_the calculations before drawing conclusions._ Where does the Return YTD come from?_ How is it calculated?_ What does it represent?_ You seem to have concluded it is right, correct?_ Where does the Return % YTD come from?_ How is it calculated?_ What does it represent?_ I think your concern about Return % YTD is valid._ It is data that is now downloaded from some source and is not currently up-to-date._ I believe that this is a change from many years past when the parameter was calculated based on your data._ Where I disagree is that you seem to have decided to throw out all performance numbers.

Unknown · February 2008

Ok, at the risk of sounding really stupid, where is this Portfolio Review Data in 2008? I recently upgraded from 2005 and pretty sure it was in that version, but I just can't seem to find what you are talking about in 2008. Any help for this 2008 challenged individual would be appreciated.

Unknown · February 2008

Do you have any tips for tracking investment performance in a tax-deferred account (401(k) or IRA)? My problem is that cost basis increases with reinvested dividends. I understand why cost basis should increase, so I need some other figure that tracks contributions. I've tried working from "amount invested" but it increases from my "actual" investment amount when I buy/sell/rebalance. I also understand why this is desired behavior but how can I make Quicken tell me "overall, you put x into this fund and now it's worth y"? Thanks.

Unknown · February 2008

How about just running an "Investment Transactions" report and customizing it to only include the transactions that you want to see (presumably, "ContribX")?db

Tod · February 2008

And along that same line as dbAnalyst's reply,_I have a saved Investment performance report that I run, Export to Excel through the clipboard, and then adjust to have Excel compute an IRR (its XIRR function)._ The message being you can readily get data into Excel for your own customized calculations._ Perhaps more to the point, I continue to use Average Annual Return (an IRR calculation) as a good baseline for an account or a security._ On an account basis, if you sell $1000 of Fund A and buy $1000 of Fund B on the same day in the same account, the IRR calculation on an account basis will 'overlook' the transactions (the two equal amount transactions effectively cancel each other out)._

Unknown · February 2008

>The message being you can readily get data into Excel for your own customized calculations.OK thanks for the tips. It sounds like I will have to export to excel to get the information I'm after. I know that this is outside of your control, but I wish that Quicken could do this itself. Based on the number of posts asking why cost-basis and amount invested don't "line up" with what they've contributed to a plan/investment, it seems like information that many people want.

Investment Performance - A how-to

Comments

Categories