Amount Invested for Parent Company incorrect after recording a spinoff

steve.wei

q_lurker:
Thanks again for your time and effort on my behalf.

While Quicken has now granted me permission to ATTACH certain types of files (PDF's and graphic files) and ATTACH images, I do not yet have the ability to INSERT a graphic into the “Post Comment” text box, as part of a flowing text—graphic—text response. For that reason, I will attach my response as three files. I sincerely hope you can see what I see.


Again, thank you for all of you time “INVESTED” on my behalf
Yes, Pun intended

q_lurker

@steve.wei: 
While I digest your information and fine tune a reply, I found this older discussion perhaps shedding light on the underlying issues with Amount Invested and thus other related parameters.  You might find the light illuminating (or confusing).

https://community.quicken.com/discussion/7499433/amount-invested-should-decrease-by-the-amount-paid-for-shares-sold

Jim_Harman

Thanks for posting that link, @q_lurker

There is further analysis and discussion here
https://community.quicken.com/discussion/7857135/why-would-roi-change-if-i-sell-a-money-market-fund

I think the key points are:

-- "Amount invested" is calculated differently in the investing reports than it is in the Investing > Portfolio views. Neither of these calculations is necessarily right or wrong, they are just different.

-- It would certainly be a good idea for Quicken to not use the same name for both of them and to clarify the difference in the glossary. The current glossary definition appears to apply to the Portfolio view version.

-- In the Portfolio views, "Amount invested" is not particularly useful by itself; it is useful mainly as a component of the ROI calculations.

q_lurker

@steve.wei

(Quotes from response attached to prior post) (and taking some items out of order)

You apparently questioned where I got a value of $89.604 that I slipped into my last posting.  That value is 84.09 + 0.142857 * 38.60.  It represents the fair market value of the VFC share immediately prior to the spinoff.  After spinoff (5/23/19), for every share of VFC you started the process with, you came out with 1 VFC @ 84.09 + 0.142857 KTB @ 38.60 = 5.514 for a total of $89.604.  So immediately before spinoff, your 1 VFC must have been valued at $89.604.  I was putting forth that your Market Value of the Removed Shares was 89.604 * however many shares were removed including those shares which had been acquired by dividend reinvestment.  That appears to be where your math got you also.  

"Since manually changing the Quicken generated $ Amount in the “Removed Shares” Transaction, I can now produce an “Earliest to date” IRR report that shows a Positive return! (Why is it necessary to manually do this - I.e. Why didn’t Quicken do this automatically??? - Doesn’t this create another reason for concern over the accuracy of the data provided by the IRR Report???)"

Why?  Because it is an error in the programming, aka a bug.  Another reason?  Sure.  That is why you are validating or reconciling this process to begin with.  Whenever possible, I am looking for reasons to believe or not believe what Quicken (and most any other computer program) is telling me.  Common sense checks as well as mathematical checks.  BUT, upon finding such a discrepancy and being able to correct said discrepancy and being able to validate such correction by other means, one can develop confidence that there is accuracy beyond that discrepancy.  If a user chooses to throw out the entire calculation for that one correctable bug (the baby and the bathwater?), that is their choice.  

IRR calculation complexity (Investopedia.citation).  No disagreement that IRR calculation is more complex than readily processed by such a simple minded investor as myself.  But as a simpler definition (not a simpler calculation), I'll quote Quicken's help file:  "Average annual return (often called Internal Rate of Return, or IRR), is usually defined as a percentage equal to the interest rate on a bank account that would give you the same total return on your investment."  That is the definition that demonstrates value to the calculation to me as a simple minded investor.  

For calculation confirmation, my efforts have always been toward exporting an Investment Performance Report to Excel and using Excel's XIRR function to produce comparable numbers.  And the computed numbers have always been highly comparable.  Use the same investment/return numbers, you get the same IRR percentage.  The problems are not in the calculation (yes 1 + 1 = 2), but in the values used, the garbage in, side.  

"I initially started this thread because after running the Quicken’s spinoff macro, it appears that the results from; “Return”, “ROI (%)”, “Gain/Loss”, and “Gain/Loss (%)” have become either questionable – or flat out bogus for VFC (Please see 3rd attachment). These are basic metrics many investors rely upon and can easily be reconciled for accuracy."

While I do see the identifiable bug for the Remove Shares portion of the Corporate Spinoff macro-transaction. I don't believe Gain/Loss is incorrectly computed.  Your attempt in 3rd attachment to equate Amount Invested + Amount Reinvested to Cost Basis is not consistent with the definition of Amounts Invested and Reinvested.  As noted in this discussion, the 2+yr old discussion I linked, and the discussion @Jim_Harman linked, Amount Invested is not what you think it is and Quicken's use and application of its definition will lead you astray. 

While in an "acquisition" mode, buying shares and reinvesting dividends, Amount Invested works the way you are expecting.  When operating in a trading or dispersal mode (selling shares, etc.), you'll find that Quicken's definition and programming is different than your modelling.  This exercise related to Corporate spinoffs is only the tip of the iceberg.

I am sure this discussion is not taking the direction you would like, but these are the tools Quicken has given us to work with - for better or worse.  

Enough for now (and maybe too much?)  HTH

steve.wei

q_lurker;
Sorry for not responding sooner. Been away on travel.
Please see the attached.
Thanks for hanging in there with me on this one.
Steve...

q_lurker

@steve.wei. I am currently traveling. More than I can handle on my phone. Will address late next week. 

q_lurker

@steve.wei "Personally, I have my doubts, because Quicken’s Performance Report / IRR ... "

First off, my personal explanation for any Quicken Average Annual Return presentation and Investment performance Report (IPR) has Quicken presenting a "universe" of finances defined by the scope of the report - selected accounts and securities.  When you ask for a report on VFC, VFC defines that "universe" and investments and returns are what comes into or flows out of that defined "universe".  A dividend taken as "cash" is a return taken out of that specified universe.  A dividend reinvested does not come out of that universe.  Instead it increases the ending size of that universe as reflected in the Ending Market value.  You suggest a similar understanding when you write "This is probably OK since the ending Market Value does include the value of the shares purchased by reinvesting all dividends."  That is indeed why the Investment Performance report for VFC omits a listing of the reinvested dividends as either return or investment.  

It might be worth noting at his time that had you treated the reinvestments as Dividend receive in cash and shares bought the same day for that same cash amount, those two transactions would appear as line items in the IPR.  They would be for the same dollar amount on the same day and thus negate each other in contribution to the ending performance percentage. 

I consider it important to recognize what took place on 5/23/19 (per your data).  ON that date, Quicken removed (returned) 211.924 shares of VFC with a total value of $18,989.29 ($89.604/share).  Quicken also added (invested) 211.924 shares valued at $84.09 / share totaling $17,820.69 (my multiplication; I did not sum the values shown).  A net of $1,168.60 left the VFC universe.  OR, the VFC universe returned $1,168.60 to the broader universe of your total financial picture.  Simultaneously, an adjoining universe of KTB received an investment (addition; inflow) of $1,168.60; but at this presentation for VFC, that is immaterial.   

As Quicken presents it, there is an outflow of $18,989.29 and an inflow of $17,820.69 on that date.  They could (in a sense) have just shown the net $1,168.60 outflow of KTB value from the VFC universe on that date, but given the independent nature of the Add and Remove Shares transactions once generated, to be comprehensive they do seem to need to show all that detail (full removal, all the additions).  

They are not saying they are removing or adding value as 'costs' or cost basis.  The are saying they are removing and adding that value (current market value) on that date.  The individual Added Shares transactions do reflect in their details the cost basis information for those lots and their applicable acquisition dates for those lots.  

"I would question if this methodology is true measurement of the Accuracy of the data that Quicken’s IRR report is providing. In my opinion, since you are exporting Quicken’s IRR data (which may include GIGO) into Excel, all that this is proving is that the math Quicken is using (1+1=2) is the same math that Excel is using." -- Agreed, but isn't that something that we want to know for sure?  That there is validity to their internal computations; that is is not "good data in, garbage out"?  Knowing that, we can focus on the "IN" side and be more trusting that if that is not garbage, the outflow will not be garbage.  

"Basically - Don’t trust Quicken’s; Amount Invested, Return, or ROI % (shown in Quicken’s “Portfolio View”), if any shares have left the account for any reason! There is no workaround! This is how quicken has chosen to present its data. Case closed!"

That is pretty close to where I am.  There may be cases where the values are ok when all shares have been removed for some duration of time, but I am always skeptical.  

"In closing: So, at this point, I am trying to decide if I should trust the IRR report data that Quicken is showing me for VFC - post spin-off."

Again, with some confirmation and perhaps tweaking of selected data, I believe the IRR values are the most reliable that Quicken offers.  But those values do still seem to need user intervention in some cases.

Perhaps I have mentioned this before, but I do find value in variations for the IPR in spinoff and merger situations.  In this case, your IRR values for separate universes of VFC (23% over four years) and KTB (?) and for their combined universe (KTB and VFC as the only securities).  As I recall since the spinoff, KTB has performed negatively.  Should that count against your VFC assessment over the last 4 years?  At what point do you start considering the two totally separate?  It is a flexibility of assessment that the IPR offers.   

steve.wei

q_lurker;
I wish to again thank you for all of you time, and willingness to help me understand how Quicken works. It is greatly appreciated!
Wishing you all the best,
Steve...