# How to calculate return for “negative” investment

I'm tracking a few investments, with a simple formula for total (non-annualised) return, which is `(current_value - money_invested) / money_invested`. For one of my investments, however, I already partially cashed out (for more than the total original investment), which makes the formula yield negative.

For the sake of argument, let's say the numbers are:

1. Invested \$1000
2. After it grew to \$3000, I sold \$1500 worth.
3. So I now have "spent" -\$500 to acquire an asset worth \$1500, yielding a return of `(1500 - -500)/(-500)` or -400%.

Is there a more meaningful calculation I can do in this case?

## 2 Answers

For uneven cash flows the appropriate calculation is the internal rate of return. Although it can be calculated by hand, if you don't want to learn the Newton-Raphson method, you should use Microsoft Excel's IRR function. There are many, many, many videos on Youtube to show you how to lay out the spreadsheet. The final value should be its current value or it will be undefined. It has to have a terminal value or it will generate garbage.

• I'm using Google Sheets, fwiw. – Steve Bennett Dec 20 '17 at 23:07

Treat it as two investments of \$500. One has been realised for \$1500 (200% return). The other is still worth whatever the remaining half of your investment is worth.

• Just confirming, two equal investments because the sale was for exactly 50%? – Steve Bennett Dec 20 '17 at 0:20
• Ok, so thinking about this more, I think where I went wrong is that buying and selling shouldn't be added together. Selling X% of a holding should be calculated as reducing the investment by X% (with a separate profit/loss outcome), rather than subtracting \$Y. – Steve Bennett Dec 20 '17 at 0:27
• Put another way: "Return" is a single-period concept. Any time there is a transaction, you should treat it as the end of a period (as if you had sold everything and then taken a new position at that time). At time 2 here you sold everything and then bought a portfolio that is half cash and half your asset. – farnsy Dec 20 '17 at 15:08