I am a retail investor investing directly in equities in the Indian stock markets. I would like to understand the correct way to compute the return on particular stocks in my portfolio, which I have accumulated over time, and parts of which I might have sold over time.
Here is an example of a stock -- Motherson Sumi Systems Limited (NSE:MOTHERSUMI) -- that I have purchased in tranches over the last year and a half. The chart below shows the price of the stock over that time period, and the red vertical lines show the dates on which I made purchases, and the green line shows the date on which I sold a certain portion of the stock.
The complete list of purchases is available in this Google Sheets sheet.
The "Date Sold" column gives
- the date on which that tranche of the stock was sold (using the FIFO principle -- that is if I hold 200 units of stock, and sell 20 units, I am required to recognize that as the sale of the first 20 units of the stock that I purchased and compute the return accordingly), or
- if that tranche of the stock is not sold, then the current date, in which case the "Price Sold" and the "Sell Amount" are the current price, and the current market value of that stock.
The CAGR is computed in the usual way for each tranche:
Note that he CAGR is computed the same way for each tranche, whether it has already been sold, or whether it is held at the moment.
Is CAGR the right way to compute the return on stock investment tranches? If there is no right way, and CAGR is one way, what is the interpretation of the CAGR? What are some other ways to compute the return on tranches?
What is my annualized return on my investment in Motherson Sumi Systems Limited till date? That is, how do I average the return across individual tranches into one return from the buying and selling pattern on this stock?