FAQ: Investment Performance: A How-To (reposted in readable format)

q_lurker

Reposted from Tod: but in a readable fashion.  Date of 1/21/05 corrected to 1/20/05 per later post in that discussion).  See that discussion for responses from other users (if you can sort out the info).

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, recieved 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
---05/04/04 = 6300
---12/31/04 = 6997.50
---01/20/05 = 6900 (date in original was 1/21/05)
---01/20/06 = 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 Portfolio 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
05/4/04 6300
08/15/04 -40
11/15/04 -40
02/15/05 -40
05/15/05 -40
08/15/05 -40
11/15/05 -40
01/20/06 -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 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.

splasher

Thanks for the info.