Login
Welcome Guest! To enable all features please Login. New Registrations are disabled.

Notification

Icon
Error

Options
Go to last post Go to first unread
Evie  
#1 Posted : Thursday, March 1, 2012 2:16:27 PM(UTC)
Evie

Rank: Member

Posts: 14

Our club treasurer uses NAIC software for our stock Valuation Statement each month with a Toolkit program.  The last column, "Compound Annual Return Since 03/02/93" gives a percentage which we thought was the annual % increase or decrease since that stock was purchased.  We felt it was time adjusted into an annual figure.  But no one can figure out how a price increase could produce a negative return.   The treasurer says I just input the numbers and have no idea how things are calculated.   A partial club stock valuation statement is attached. 

  Stock         Purchase $    Current $    Compound Annual Return

ONNN          $7.49            $9.39               -22.23%

STM              6.79              6.73               -14.43%

PCX              13.82           8.38                    2.51%

Thanks for your help.

 

Wanna join the discussion?! Login to your forum account. New Registrations are disabled.

gerlach  
#2 Posted : Thursday, March 1, 2012 5:21:33 PM(UTC)
gerlach

Rank: Administration

Posts: 437

Thanks: 7 times
Was thanked: 14 time(s) in 10 post(s)

If you have more than one purchase of those stocks, or have sold some of the shares, then it is altogether possible to have a gain on the total and a negative compound annualized return of the stock.

Compound Annual Return takes into account the cash flows, so a lengthy period where you have held the stock in one purchase at a loss followed by a second purchase with a short period where the stock increased, thus finally showed a gain on your total investment could result in a negative CAR. In that case, your holdings were mostly going down, so the annualized return is negative.

There could also be a case where you bought a stock, sold it, then bought it again. If set in preferences, the program will calculate the returns based on the earlier ownership as well as the current ownership, so the CAR might not be what you expect.

Does that make sense or seem applicable to your situation?

Doug

Evie  
#3 Posted : Friday, March 2, 2012 9:35:50 AM(UTC)
Evie

Rank: Member

Posts: 14

Doug,

It is a bit confusing but I believe we did buy/sell at least two of the three stocks. That said, how could we 'zero out' the past history if we chose to?

I was thinking that if we completely delete the stocks (as if we sold them) and then reinput at the most current purchase date and prices it might correct our problem. But from your answer I am not as sure that that would work either.

How could we delete any past history and only show CAR and other data current to only the shares we still own?  If we can do this please place the dots very close (keystoke by keystroke) as I know nothing of the the NAIC program used here.  I am new president of our stock club and do not want to embarass the treasurer with too many questions that neither if us know the answers to. 

Right now I really appreciate this Q&A section probably as much as the Stock Study or SSG itself. 

gerlach  
#4 Posted : Monday, March 12, 2012 12:19:10 PM(UTC)
gerlach

Rank: Administration

Posts: 437

Thanks: 7 times
Was thanked: 14 time(s) in 10 post(s)
In Club Accounting 3, select Tools > Settings from the program menu, then uncheck the "Include Earlier Ownership" box on the right side.
Evie  
#5 Posted : Wednesday, March 21, 2012 11:04:03 AM(UTC)
Evie

Rank: Member

Posts: 14

In Club Accounting 3, select Tools > Settings from the program menu, then uncheck the "Include Earlier Ownership" box on the right side.

Don,

I received your above reply to the problem of past buy/sell of a stock that now has a higher price than when we purchased it BUT shows a negavitive CAR.  After passing it on to out treasurer he unchecked "Include Earlier Ownership" but he reports no change in the CAR values, still negative.  What am I missing?

gerlach  
#6 Posted : Wednesday, March 21, 2012 12:08:31 PM(UTC)
gerlach

Rank: Administration

Posts: 437

Thanks: 7 times
Was thanked: 14 time(s) in 10 post(s)

 If that's the case, then it's likely that you have several purchases and/or sales of the stock. Depending on the timing of the purchases, you could still show a gain and have a negative CAR. If you want to send your individual security history for the stock in question (a report of all the transactions, we can take a closer look for you.

 
Doug
Evie  
#7 Posted : Sunday, April 1, 2012 11:07:43 AM(UTC)
Evie

Rank: Member

Posts: 14

Doug,

Attached is clubs transaction history of subject stocks giving hegative CAR.

gerlach  
#8 Posted : Monday, April 2, 2012 5:07:20 AM(UTC)
gerlach

Rank: Administration

Posts: 437

Thanks: 7 times
Was thanked: 14 time(s) in 10 post(s)

Yes, it's as I expected. For each of these stocks, you have several purchases and at least one sale, the latest in December. On each of the sales, you sold and registered a significant capital loss. Since each sale, though, the price has risen above the cost of the remaining shares, so you should a gain on the remaining shares, but a compounded, annualized percentage loss on all of the shares you own now or owned and sold.

Let's look at ONN Semiconductor.

You purchased 200 shares on 2/17/11 for $2,267 (block #1), share price $11.30.

You purchased 200 shares on 4/14/11 for $1,927 (block #2), share price $9.60.

You purchased 200 shares on 8/16/11 for $1,497 (block #3), share price $7.45.

You sold 400 shares on 12/20/11 for $2,899  (blocks #1 and #2), share price $7.23, for a $1,295 loss, leaving only your block #3 shares.

Then, on your 2/10/2012 valuation statement, the share price of ONNN was $9.39, showing a total gain on the remaining shares (those purchased on 8/16/11 for $7.45).

Without getting too deeply into the math, you can probably see that for 10 months, from February to December, the price of this stock declined from a high of $11.30 to as low as $7.23. The average cost per share for those first two blocks was about $10.45.

From December to February, the share price increased from $7.23 to $9.39. For your block #3 shares, the price grew from $7.45 to $9.39 in about 6 months.

This gives you a 10-month holding period where you recorded a loss of about $3/share on a big portion of your holdings and a 6-month period where you recorded a gain of about $2.26/share on the remaining holdings. The losses outweigh the gains, so the Compound Annual Return is negative, -22.2%.

Over time, if the share price of your remaining holdings continues to go up sufficiently, the CAR would turn positive. But for now, the CAR is telling you that if you were to repeat the above purchase and sale pattern at the same prices every 12 months, then you would lose 22.2% a year.

Hopefully that will help you and your club members to understand this report.

Doug

Evie  
#9 Posted : Saturday, April 7, 2012 4:36:43 AM(UTC)
Evie

Rank: Member

Posts: 14

Doug,

Thanks for your comments but my question was "When I uncheck 'Include Earlier Ownership' why do the numbers stay the same?"   I thought that by unchecking IEO would cause the program to ignore all previous transactions and only use our current holdings.  The treasurer says no mater if he checks or unchecks the values remain the same!

jimthomas@yahoo.com  
#10 Posted : Saturday, April 7, 2012 9:37:54 AM(UTC)
jimthomas@yahoo.com

Rank: Advanced Member

Posts: 105

Evelyn,

My understanding is that the "Include Earlier Ownership" setting only makes a difference for holdings which are entirely disposed of (down to zero shares) and then purchased again later. That is not the case in your examples.

-Jim Thomas
Evie  
#11 Posted : Monday, April 9, 2012 10:33:50 AM(UTC)
Evie

Rank: Member

Posts: 14

Jim, Thanks for your info. I assummed it would cancel out all previous transactions for the stock and only deal with the shares still owned. If I would enter a "sell" for 100% of the shares giving a zero balance and then the following day reenter the shares with their original purchase dates would that give me the CAR for only the shares still owned or would the dates mess up the results?

Once shares of a stock have been bought and sold several times is there any way to get a clear CAR on only the shares still owned without having the CAR always go back and included shares that may have been bought, sold and taxes paid years earlier?
gerlach  
#12 Posted : Monday, April 9, 2012 12:53:42 PM(UTC)
gerlach

Rank: Administration

Posts: 437

Thanks: 7 times
Was thanked: 14 time(s) in 10 post(s)

No, you can't simply delete and re-enter the transactions. That wouldn't accomplish anything.

It seems to me that maybe you're trying to only display the data that will give you a positive result, and trying toignore data that gives you a less positive result. The return calculations that the program is giving you are a "true" story of how each of your holdings has performed over the lifetime of all related buys and sells for that security.

However, if your club is really intent on displaying separate return calculations for each separate purchase, then there is a way that you can do it. In Club Accounting 3, you can Add a New Security for each separate purchase with the Security Name and Ticker Symbol being different, by being numbered (Microsoft #1, Microsoft #2, Microsoft #3, etc.) or perhaps with the purchase date (Microsoft 2009/03/23, Microsoft 2010/07/18, etc.). Note that you must now manually enter the price for this new security whenever you create a Valuation Statement, since the ticker symbol will not be correct.

In myICLUB, this is much easier since you can retain the "Quote Symbol" while changing the ticker and name that appear on reports, allowing you to download new share prices and still track various lots.

This is considered an advanced technique. It should only be used by clubs and treasurers that are aware of all of the implications. This method makes things more complicated for treasurers and members, since your valuation statement will become much more complex and some additional recordkeeping will be required when entering dividends, and other related security transactions. You must take special care when selling to ensure that you are recording the same lots sold as are being sold by your brokerage (with respect to FIFO vs. specific lot methods of accounting) or your records won't match what your brokerage will be reporting.

Again, however, I reiterate that if you're doing this so that you can overlook the poorly-performing lots while congratulating yourself on the better-performing lots, then this is probably not a good idea.

Doug

Evie  
#13 Posted : Wednesday, April 11, 2012 4:42:35 PM(UTC)
Evie

Rank: Member

Posts: 14


Doug,
The purpose is NOT to display only data that will give a positive result and ignore data that might give less positive (or negative) result. The purpose is to show the CAR for only the stocks we currently own. We have more stocks than the examples I sent to you. Some of these show a positive CAR but are currently at a lower price than what was paid for them due to long past old trades. If we bought 200 shares of XYZ then bought another 100 shares and then sold them 200 shares all ten years ago that is past history and there is nothing we can do to change that profit or loss now. Today I am only interested in the 100 shares still owned. So again the purpose is to show a CAR that actually represents ONLY what we curently own. We have no interest in shares that are long gone due to being bought and then sold back in the 1990's. Using these old numbers clouds what we currently own and does not give us the knowledge of where we stand today with what we own today.

I appreciate your suggestion on Microsoft1, Microsoft2 Microsoft3 etc. Of course we do not care to make things more difficult for the treasurer. So I see two alternatives.

1)We may change the security name while keeping the same ticker, run the program, get our current CAR and write down these results. Then rerun the program as it was originally, getting the slanted CAR results from past history. The treasurer can use these numbers in order to keep things simpler for his record keeping. We can ignore that CAR and study the CAR that we had written down by hand. But this is a bit of work.

2)It might be simpler to follow up on Jim Thomas' reply, " My understanding is that the "Include Earlier Ownership" setting only makes a difference for holdings which are entirely disposed of (down to zero shares) and then purchased again later. That is not the case in your examples." Jim's comments would require some effort but might be easier. a)Sell all shares (on paper) b) input only the shares we currently own c)run program for CAR d)reinput all the original history the same as original report. This gives our CAR based only what we now own and CAR based on all the past trades too.






Users browsing this topic
Guest (2)
Forum Jump  
You cannot post new topics in this forum.
You cannot reply to topics in this forum.
You cannot delete your posts in this forum.
You cannot edit your posts in this forum.
You cannot create polls in this forum.
You cannot vote in polls in this forum.

Powered by YAF.NET | YAF.NET © 2003-2024, Yet Another Forum.NET
This page was generated in 0.124 seconds.