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My question may sound too stupid, but trying to understand some basics here.

I have the buy & sell price of certain stocks. I've calculated the profit/ loss (P/L) on each of them and the profit & loss percentages.

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If I take the sum of all the Profit & Loss percentages, it comes to about -48.17% But, If I see the difference between the net sell(359) - net buy(358), it comes to 1.

Speaking as a layman, I've made a profit of 1 on these transactions. But my P/L% say that I'm down by -48.17%. What does the summation of profit/ loss represent here?

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    Just as an aside, if you were going to add percentages, it would be for attribution. And you'd do it by multiplying each P/L by what % of the portfolio it represents. IE 10% of my portfolio (36) went up 11% (to 40) so this has added 10% * 11% = 1.1% to my total return. You can then add those to get your total overall return, and see which positions had the biggest impact. – Kaz Jul 25 '20 at 16:45
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    Your table is missing the number of shares you bought and sold for each stock. Without that, your "P/L = 359 - 358 = 1" is also meaningless. – nanoman Jul 25 '20 at 23:00
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    Often, it indicates that somebody is selling snake oil to the mathematically clueless. For example, if a stock goes down 30% and then up 40%, "obviously" you gained 10%, yes? Wrong, you actually lost 2%. 0.7 x 1.4 = 0.98, – alephzero Jul 25 '20 at 23:33
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Respectfully, nothing meaningful. You are simply adding numbers that should not be added.

Say I have a 1% gain on $1M. That's $10,000

But I have a 100% loss on a single share of a $10 stock. That's -100% Add them up, -99%.

You see how this makes no sense?

You need to recalculate that cell, to get your portfolio return.

16

Suppose that I have two positions which I then sell:

  • Buy 100 ABC for $1 per share and sell for $2
  • Buy 100 XYZ for $500 per share and sell for $550

I made 100% on stock ABC and 10% on XYZ. These percentage gains are not additive. I did not make 110%. Nor did I make an average of 55% (divide by 2).

I invested $501 and I ended up with $552, a gain of $51. My portfolio gain is 10.18%.

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    1 second after me. Great minds think alike. Similar examples. Can't add these. – JTP - Apologise to Monica Jul 24 '20 at 19:19
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    You only posted sooner because you type with 8 more fingers than I do :->) – Bob Baerker Jul 24 '20 at 19:38
  • You should learn 10-finger typing to earn more of these internet points – RiaD Jul 25 '20 at 20:37
  • The problem with your suggestion is that when I use more fingers, SHIFT happens on my keyboard :->) – Bob Baerker Jul 26 '20 at 2:22
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As others have said, the sum of percentages is not useful for most purposes. However, there is an interpretation: It indicates whether you would have made money if you had invested an equal dollar amount in every trade.

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This number will be incredibly important if the buy and sell numbers represented a single asset rather than a lump of them. If the initial prices were normalized, for example because you want each of your trade to be composed of roughly the same market value, then your current sum of P/L% indicates how successful that would be!

It's certainly not meaningless to think of percentages and add them up, although it may not be what you were looking for in this instance. Normalization will always be the key word that makes those percentages relevant, regardless of whether your input data consists of asset prices or some other statistic.

Hope that helps!

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  • Can anyone elaborate on the downvotes? The OP indicated that the buy and sell prices are individual stock prices rather than the market value of his positions. Obviously, most traders or investors will purchase based on their account size rather than on the price of the stock, buying however many gets them to a certain value. So, why then, is this answer downvoted? The sum of percentages represents how well buying and selling those assets would've done if you normalized price. Which matters, obviously. Even if it wasn't what OP was looking for. So why downvote? – RalphD Jul 26 '20 at 12:07
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    Unfortunately, it's not common to get a comment along with downvotes. The member that voted down isn't likely to visit the question a second time. The other issue is that this question hit HNQ (the Hot Network Question column). This results in a distortion of votes. One where an answer (mine) actually gets voted up far higher than another answer which is a bit better (Bob's). In your case, let me ask - if the math problem isn't obvious to OP, do you believe that your answer and use of the word "normalization" is helpful? If you'd like, you should edit with an example to clarify this idea. – JTP - Apologise to Monica Jul 26 '20 at 15:17
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    Not a downvoter, but: "This number will be incredibly important if the buy and sell numbers represented a single asset" is already wrong. Suppose you bought an asset at 100 and sold it later for 150, a profit of +50 or +50%. Yet later, you bought the exact same asset (maybe it's a painting) at 200. Unfortunately, the market crashes, and you have to sell again at 100, a loss of -100, or -50%. The averages of the percentages are 0% and suggest you broke even. But you didn't: you made an overall loss of -50. If this is not what you intended, you may want to edit your answer to clarify. – Stephan Kolassa Jul 27 '20 at 19:06
  • Thanks for the replies, those are some very insightful remarks across the board. I didn't consider the audience/OP when choosing the style of my answer in this case. @StephanKolassa to specifically address this comment, though: yes, I see now how this sounds incredibly stupid. What I elaborate on and is the main point of the answer is that this indicates that, if you kept your position sizes the same, you would've broken even. This is what the percentage number indicates. If the percentage sum is much better than your P/L, you would've greatly benefitted from keeping position sizes the same. – RalphD Aug 5 '20 at 13:11

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