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investment performance report incorrect for add shares transactions - date acquired not recognized

Unknown
Unknown Member
edited October 2018 in Investing (Windows)
Quicken 2017 R4
investment performance report incorrect for add shares transactions. 
using new quicken data file.
2 brokerage accounts
acct 1:
opening balance 1000 on 12/31/1999
buy 100 shares intc at 10/sh 1/2/2001 (transaction date is 1/2/2001)

acct 2:
opening balance 0 on 12/31/1999
add 100 shares intc, cost basis 1000, date acquired 1/2/2001 (transaction date is 1/24/2017)

performance report for acct1, selecting only acct 1 and only intc security produces correct IRR. 
performance report for acct2, selecting only acct 2 and only intc security produces incorrect IRR.

see images below. note date is acct2 report for added shares shows transaction date. it should show acquired date to enable correct IRR calculation. 

portfolio view:
image

acct1 investment performance:
image

acct2 investment performance:
image

image

Comments

  • NotACPA
    NotACPA SuperUser, Windows Beta Beta
    edited October 2018
    In brokerage 2, what did you use for the "Date Acquired" field in the Added transaction.  Because it looks like you used the 1/24/17 transaction date instead of the 1/2/01 date.
    Q user since DOS version 5
    Now running Quicken Windows Subscription,  Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • Unknown
    Unknown Member
    edited January 2017
    I used 1/2/2001.  image below:

    (note: lots (dates) in portfolio are correct for both accts.)

    image
  • NotACPA
    NotACPA SuperUser, Windows Beta Beta
    edited October 2018
    Try copying your Q data file and then Validating the copy.  Corrupted data could also cause this.
    Q user since DOS version 5
    Now running Quicken Windows Subscription,  Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • Unknown
    Unknown Member
    edited January 2017
    copied file using file operations
    validated file. no errors.
    same incorrect result.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited May 2018
    You are misunderstanding the intent.  The two scenarios you present are not the same.  There is not a mathematical reason for the Date Acquired to be considered of the IRR calculation.  It is the date that the shares become part of the account that drives the timing part of the calculation.  The Date Acquired is only related to tax (capital gain) considerations as far as I can identify.

    In your case 1, for that security in that account, you brought in $1000 of INTC shares in 2001 and it grew to $3760 over the next 16 years for an average annual return of 8.59%.  That was the performance of that security in that account.   

    For case 2, for that security in that account, you brought into the Quicken account the INTC shares valued at $1,000 on 1/24/17 and the next day they were worth $3760.  That is too big of an average annual return for Quicken to compute.  

    You are getting different results because the timing on when the shares became part of the account are different.    

    I will grant that there is an argument to use a different value than the cost basis for the add shares contribution.  Perhaps a value like 37.62 (the closing price on 1/24/17) or 36.77 (the closing price on the prior trading date) should be used.  But that is a different issue than you raised.  

    I think this is a case where the user needs to be very careful about interpreting the results.  If this was a case of transferring shares from one Quicken account to another (not your expressed scenario), the useful information would come from including both accounts in the report.  Treating the two accounts separately yields results that are not meaningful.  

    If this were a case of inherited shares without a stepped up basis, then the Add shares with the low cost basis is required for cap gain considerations, but for security performance (IRR), the user really needs to start the next day (after the Add Shares transaction date) to get 'current' performance info.  
    HTH 
  • Unknown
    Unknown Member
    edited May 2018
    HTH, thanks for the detailed reply.
    I interpreted the Date Acquired and Cost Basis as the only meaningful stating point for 3 topics, Tax (long/short gain), Lots (as in investment report and portfolio), and IRR calculation in Performance Report.

    If I were a new user to quicken and adding shares to new quicken account I would have transaction dates much different than dates acquired but as long as quicken used the date acquired in all 3 contexts, (Tax, Lots, IRR), the transaction date would not matter. In the case of a Purchase, the date acquired and transaction date are the same.

    The actual scenario for me, where I discovered this issue, was doing an account transfer, with many add shares entries created by quicken, one for each share purchase in the  "from" account. 

    While I agree that the 2017 r4 quicken is interpreting the date acquired only for Lots and Tax, my view is that quicken should also use it for IRR. I think quicken did in prior years releases, although I cannot verify as I don't any prior releases installed.

    HTH, again thanks for the detailed answer.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited January 2017
    redrock said:

    HTH, thanks for the detailed reply.
    I interpreted the Date Acquired and Cost Basis as the only meaningful stating point for 3 topics, Tax (long/short gain), Lots (as in investment report and portfolio), and IRR calculation in Performance Report.

    If I were a new user to quicken and adding shares to new quicken account I would have transaction dates much different than dates acquired but as long as quicken used the date acquired in all 3 contexts, (Tax, Lots, IRR), the transaction date would not matter. In the case of a Purchase, the date acquired and transaction date are the same.

    The actual scenario for me, where I discovered this issue, was doing an account transfer, with many add shares entries created by quicken, one for each share purchase in the  "from" account. 

    While I agree that the 2017 r4 quicken is interpreting the date acquired only for Lots and Tax, my view is that quicken should also use it for IRR. I think quicken did in prior years releases, although I cannot verify as I don't any prior releases installed.

    HTH, again thanks for the detailed answer.

    I am using QW2014 (at this point in time) and it is behaving the same way.  I believe Quicken has always operated that way.  

    Back in 2012, I made a major change to an investment account moving all holdings from one account to a new account through the Shares Transferred function.  That program version (2009 or 2011) behaved the same way.  That is where, if you report on both accounts for the IRR, then on the transfer date, you have a removal of $X basis from one account and an addition of $X basis to the new account - its a wash and the IRR value is not affected by the transfer.  When looking at the two accounts individually, the old account might show a great loss (all the gains went away as the removed value was basis) while the new account shows the instant gains and performance you cited.

    When I want IRR from before 1/1/2012 till a date after that, I include both accounts and do not subtotal by account.  When I want IRR for 2012 and later, I start on 1/2/12 - after the transfers were effective, rather than on 1/1/12 with the basis prices.     

    My problem with IRR considering the acquisition date is all timing related.  Suppose you were asking for annual IRR.  You case 1 has no problem with that calculation.  For the case 2, up until the 1/24/17 Shares Added transaction, the performance was 0% for every year (no holdings).  Then after the 1/24/17 Shares Added transaction gets entered, now all those intermediate years suddenly have performance?  That's not right.  Those shares weren't in that picture over that time period.  It is creating a situation where the entry of a transaction in the future (1/24/17) is altering the prior periods results.  

    Bear in mind with my above example that it need not be a 0-shares to X-Shares jump.  You could have held real shares of INTC in account 2 over that period (with associated real performance) and then Added more Shares on 1/24/17.  The pre-2017 returns would be improperly changed by the 1/24/17 Shares Added transaction, but the change would not be obvious.  

    And then you look at the case where multiple securities are involved and the traceability of the effects becomes even more hidden.  That may well be where you began researching this circumstance. 
  • Unknown
    Unknown Member
    edited January 2017
    redrock said:

    HTH, thanks for the detailed reply.
    I interpreted the Date Acquired and Cost Basis as the only meaningful stating point for 3 topics, Tax (long/short gain), Lots (as in investment report and portfolio), and IRR calculation in Performance Report.

    If I were a new user to quicken and adding shares to new quicken account I would have transaction dates much different than dates acquired but as long as quicken used the date acquired in all 3 contexts, (Tax, Lots, IRR), the transaction date would not matter. In the case of a Purchase, the date acquired and transaction date are the same.

    The actual scenario for me, where I discovered this issue, was doing an account transfer, with many add shares entries created by quicken, one for each share purchase in the  "from" account. 

    While I agree that the 2017 r4 quicken is interpreting the date acquired only for Lots and Tax, my view is that quicken should also use it for IRR. I think quicken did in prior years releases, although I cannot verify as I don't any prior releases installed.

    HTH, again thanks for the detailed answer.

    I will read and think and reply tomorrow. again, thanks for the details. 
  • Unknown
    Unknown Member
    edited May 2018
    reply to  q.lurker, SuperUser

    responding to: 
    My problem with IRR considering the acquisition date is all timing related.  Suppose you were asking for annual IRR.  You case 1 has no problem with that calculation.  For the case 2, up until the 1/24/17 Shares Added transaction, the performance was 0% for every year (no holdings).  Then after the 1/24/17 Shares Added transaction gets entered, now all those intermediate years suddenly have performance?  That's not right.  Those shares weren't in that picture over that time period.  It is creating a situation where the entry of a transaction in the future (1/24/17) is altering the prior periods results.  

    I have had similar situations. when I transfer assets in real world to new broker/account, I expect all the cost basis history to come with the transfer, so the new account looks like the asset was there from beginning and the performance (except for issue below) and tax issues are correct.

    In quicken I expect this same behavior. When I transfer an asset quicken creates dozens of add shares entries to capture all the cost basis history for Tax and Lot presentation, AND I thought also for IRR calcs. However there is at least one hole in my thinking. Dividends, which are a necessary part of IRR (both timing and amount), are not transferred to new account using shares transfer transaction. So the only way to get a correct IRR is to select both accounts in IRR calc. 

    This makes me think that it might be better to just rename the existing account if it is a 1 to 1 transfer and not a mix of accounts.

    So, because the dividends are not transferred, the IRR calc will be incorrect in cases of dividend paying stocks, most of mine. So the only answer is the one you use which is the selection of both accounts. 

    Let me know if there are "points" or other recognition I can give you as I really appreciate your time, patience, and expertise on this issue.
    RedRock

    ps. sorry I didn't get the HTH epilogue and thought it was your initials.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited January 2017
    redrock said:

    reply to  q.lurker, SuperUser

    responding to: 

    My problem with IRR considering the acquisition date is all timing related.  Suppose you were asking for annual IRR.  You case 1 has no problem with that calculation.  For the case 2, up until the 1/24/17 Shares Added transaction, the performance was 0% for every year (no holdings).  Then after the 1/24/17 Shares Added transaction gets entered, now all those intermediate years suddenly have performance?  That's not right.  Those shares weren't in that picture over that time period.  It is creating a situation where the entry of a transaction in the future (1/24/17) is altering the prior periods results.  

    I have had similar situations. when I transfer assets in real world to new broker/account, I expect all the cost basis history to come with the transfer, so the new account looks like the asset was there from beginning and the performance (except for issue below) and tax issues are correct.

    In quicken I expect this same behavior. When I transfer an asset quicken creates dozens of add shares entries to capture all the cost basis history for Tax and Lot presentation, AND I thought also for IRR calcs. However there is at least one hole in my thinking. Dividends, which are a necessary part of IRR (both timing and amount), are not transferred to new account using shares transfer transaction. So the only way to get a correct IRR is to select both accounts in IRR calc. 

    This makes me think that it might be better to just rename the existing account if it is a 1 to 1 transfer and not a mix of accounts.

    So, because the dividends are not transferred, the IRR calc will be incorrect in cases of dividend paying stocks, most of mine. So the only answer is the one you use which is the selection of both accounts. 

    Let me know if there are "points" or other recognition I can give you as I really appreciate your time, patience, and expertise on this issue.
    RedRock

    ps. sorry I didn't get the HTH epilogue and thought it was your initials.
    This makes me think that it might be better to just rename the existing account if it is a 1 to 1 transfer and not a mix of accounts.
    That is very true.  There is some value to starting fresh with a new account in some circumstances (active trading), but the rename process also works quite well and is frequently recommend for that situation.
    Let me know if there are "points" or other recognition I can give you ...
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  • Unknown
    Unknown Member
    edited January 2017
    moderator,
    1. The assertion by the OP, redrock, me, has been shown to be incorrect, as explained by  q.lurker and agreed to by me, assuming you agree.
    2. Net summary: Date acquired in an 'Add shares' transaction is used in 2 contexts, Tax (capital gain duration), and Investments>Portfolio>Lots view/report. Date Acquired is not used in the Rate-of-return, IRR, in the investment performance report.
    3. This thread can be closed or marked answered if that is part of your process.
    Much thanks to  q.lurker,

    Redrock
This discussion has been closed.