Is there value in this basic calculation?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
1030danielle
Posts: 167
Joined: Fri Jul 15, 2016 12:25 pm

Is there value in this basic calculation?

Post by 1030danielle »

***EDITS:
The individual stocks account for 27 percent (funnily enough) of my entire portfolio, whose value is in the low 7 figures. There's something like $250K in unrealized gains in the individual stocks.
I did get the step-up in basis when my stepfather died, in April 2020. The market was low the day he passed, and it's gained a lot since then.
Market weight for the 27 stocks leans a bit heavy toward midcap (22%), compared to US market (13%); large cap is 66% compared to US market 79%; small cap is 11% compared to US market (7.7%); it's about 50/50 growth-value; industry-wise, it's heavy on industrials (+15%) and basic materials (+5%), and light on health care (-6%) and consumer staples (-5%).
I think keeping the individual holdings makes more sense, considering the gains. I will keep an eye out for TLH opportunities, maybe. This is not money I have to touch for at least 10 years.
***END EDITS***

I would love to be a three-funder all the way, but a recent inheritance from a taxable account now makes that … difficult. There are now 27 individual stocks in my taxable account. Selling them to try to create a 3-fund indexed portfolio would trigger too many gains (not a problem I’m complaining about).

My curiosity got the better of me, and I wonder if there’s any value in doing the following calculation, and whether the math actually is accurate. Am I comparing apples to apples?

My process:
What if I averaged out the daily percent increase or decrease of the 27 individual stocks and then compared it to what the total stock market index fund did that day? For example, today, the 27 individual stocks gained +0.4% on average. Vanguard’s total Stock market index ended today down -0.56%.*

* method: I added/subtracted the day’s percent gain or loss of each of the 27 ticker symbols and divided by 27.

Why do I want to do this? Curiosity plus a desire for further justification for keeping these individual stocks.

Thoughts?

Thanks.
Last edited by 1030danielle on Thu Jul 29, 2021 12:44 pm, edited 1 time in total.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Is there value in this basic calculation?

Post by retiredjg »

1030danielle wrote: Wed Jul 28, 2021 3:56 pm I would love to be a three-funder all the way, but a recent inheritance from a taxable account now makes that … difficult. There are now 27 individual stocks in my taxable account. Selling them to try to create a 3-fund indexed portfolio would trigger too many gains (not a problem I’m complaining about).
Maybe. Maybe not. Your basis in each share of stock is the value on the day you inherited it. This is called a "stepped up basis". It does not matter if the deceased person had huge gains. You only pay for gains since the day of inheritance.

Does that change things? If not, you might have so much money that it does not mater what you do with the stocks.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Is there value in this basic calculation?

Post by retiredjg »

What percentage of your total portfolio does this bucket of 27 stocks represent?

Are they well diversified?
averagedude
Posts: 1772
Joined: Sun May 13, 2018 3:41 pm

Re: Is there value in this basic calculation?

Post by averagedude »

Plug all of your holding with dollar amounts on the instant x-ray tool on Morningstar's websight. How does the style box, market capitalization, and sector exposure compare with the total US stock market? You also may be able to put this into a portfolio at Morningstar, and it will tell you how it performed daily.
lazynovice
Posts: 3369
Joined: Mon Apr 16, 2012 10:48 pm
Location: Denver area. Former Texan.

Re: Is there value in this basic calculation?

Post by lazynovice »

“* method: I added/subtracted the day’s percent gain or loss of each of the 27 ticker symbols and divided by 27.”

Unless you own the exact same dollar amount of each stock and you continue to own the same dollar amount of each, this is bad math. If you own $10,000 of Facebook and it goes up 5% and you own $100,000 of ExxonMobile, and it goes up 1%, your portfolio did not increase by 3%.

Once I got the step-up in basis sorted out, I’d start to fund ways to dispose of the stocks through charitable giving etc to minimize taxes.
tomsense76
Posts: 1428
Joined: Wed Oct 14, 2020 1:52 am

Re: Is there value in this basic calculation?

Post by tomsense76 »

retiredjg wrote: Wed Jul 28, 2021 4:43 pm
1030danielle wrote: Wed Jul 28, 2021 3:56 pm I would love to be a three-funder all the way, but a recent inheritance from a taxable account now makes that … difficult. There are now 27 individual stocks in my taxable account. Selling them to try to create a 3-fund indexed portfolio would trigger too many gains (not a problem I’m complaining about).
Maybe. Maybe not. Your basis in each share of stock is the value on the day you inherited it. This is called a "stepped up basis". It does not matter if the deceased person had huge gains. You only pay for gains since the day of inheritance.

Does that change things? If not, you might have so much money that it does not mater what you do with the stocks.
+1
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
alex_686
Posts: 13320
Joined: Mon Feb 09, 2015 1:39 pm

Re: Is there value in this basic calculation?

Post by alex_686 »

What is your goal? The calculations are valid, but to what?

You want to own assets that fit into your goals- expected return, risk, etc. The default portfolio is the mark portfolio but it doesn’t have to be. Do these stocks match your goals? For that, this calculation is worthless.

Are you try to determine if your active managment is superior? This calculation is getting close. You are going to need to adjust for risk, which I suspect is higher.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
investorpeter
Posts: 609
Joined: Sun Jul 31, 2016 5:46 pm

Re: Is there value in this basic calculation?

Post by investorpeter »

Yes, there is value in tracking the performance of your individual stock portfolio, but you want to track more than daily performance. You want to track performance over longer periods (1 mo, 3 mo, YTD, 1 year, 3 year, 5 year, etc.). If your stock brokerage doesn't have a performance function, the easiest way to track performance that I have found is to use the free Morningstar portfolio manager tool. https://www.morningstar.com/portfolio-manager You enter your stocks, purchase dates, and purchase price, and then select the index to compare against.

There is also a way to do what you suggest about calculating daily change using Google Sheets, and I do that also as a way of tracking net worth, and comparing daily change relative to the SP500. As others have noted, you want to track the daily change in percentage of your overall portfolio, not the average change of each stock. Google Sheets can pull the daily stock price as well as daily dollar and daily percentage change for you, so it is not that difficult to figure out how to calculate the daily percentage change in your portfolio, and compare to an index such as the SP500. Then you can also go crazy with conditional formatting, etc.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Is there value in this basic calculation?

Post by delamer »

retiredjg wrote: Wed Jul 28, 2021 4:43 pm
1030danielle wrote: Wed Jul 28, 2021 3:56 pm I would love to be a three-funder all the way, but a recent inheritance from a taxable account now makes that … difficult. There are now 27 individual stocks in my taxable account. Selling them to try to create a 3-fund indexed portfolio would trigger too many gains (not a problem I’m complaining about).
Maybe. Maybe not. Your basis in each share of stock is the value on the day you inherited it. This is called a "stepped up basis". It does not matter if the deceased person had huge gains. You only pay for gains since the day of inheritance.

Does that change things? If not, you might have so much money that it does not mater what you do with the stocks.
The step up may not have occurred if the stocks were held in certain types of trusts.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
User avatar
asset_chaos
Posts: 2629
Joined: Tue Feb 27, 2007 5:13 pm
Location: Melbourne

Re: Is there value in this basic calculation?

Post by asset_chaos »

Even if you decide to keep the 27 stocks, make sure their dividends go to your settlement fund (don't reinvest in the individual stocks) and reinvest the money in your index funds.

If you're trying to estimate volitility of the individual stock portfolio compared to the volatility of, say, total stock index fund, the way to do it is to track the daily percentage change of the total value of the 27 stocks, not the average of their individual prices. Change in portfolio value is a well defined volatility.

As others have said, check your basis on these stocks. If you inherited directly, you should be able to sell all without capital gains tax. But if you inherited the stocks via the dissolution of a trust fund, then the stocks' basis may be their value when they were put in the trust, in which case there likely would be capital gains to be taxed on sale.
Regards, | | Guy
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Is there value in this basic calculation?

Post by dbr »

1030danielle wrote: Wed Jul 28, 2021 3:56 pm I would love to be a three-funder all the way, but a recent inheritance from a taxable account now makes that … difficult. There are now 27 individual stocks in my taxable account. Selling them to try to create a 3-fund indexed portfolio would trigger too many gains (not a problem I’m complaining about).

My curiosity got the better of me, and I wonder if there’s any value in doing the following calculation, and whether the math actually is accurate. Am I comparing apples to apples?

My process:
What if I averaged out the daily percent increase or decrease of the 27 individual stocks and then compared it to what the total stock market index fund did that day? For example, today, the 27 individual stocks gained +0.4% on average. Vanguard’s total Stock market index ended today down -0.56%.*

* method: I added/subtracted the day’s percent gain or loss of each of the 27 ticker symbols and divided by 27.

Why do I want to do this? Curiosity plus a desire for further justification for keeping these individual stocks.

Thoughts?

Thanks.
As arithmetic goes it would make more sense to track the total value of your holdings and look at the return compared to the return of a TSM fund. Averaging % changes in a set of data where the various holding are larger or smaller is usually a mistaken way to formulate a problem like this. After some time you would accumulate a set of monthly and annual returns you could compare for mean and standard deviation to see if the two sets of results are different in a statistically significant manner. In short you are comparing the statistics of the returns of two different portfolios.

Of course the result is going to be pretty much meaningless as any kind of justification as the outcome will just show that different portfolios produce different results except when they don't.
User avatar
Topic Author
1030danielle
Posts: 167
Joined: Fri Jul 15, 2016 12:25 pm

Re: Is there value in this basic calculation?

Post by 1030danielle »

retiredjg wrote: Wed Jul 28, 2021 4:43 pm
Maybe. Maybe not. Your basis in each share of stock is the value on the day you inherited it. This is called a "stepped up basis". It does not matter if the deceased person had huge gains. You only pay for gains since the day of inheritance.

Does that change things? If not, you might have so much money that it does not mater what you do with the stocks.
I don't think it changes things... I made some edits in original post.
User avatar
Topic Author
1030danielle
Posts: 167
Joined: Fri Jul 15, 2016 12:25 pm

Re: Is there value in this basic calculation?

Post by 1030danielle »

averagedude wrote: Wed Jul 28, 2021 4:58 pm Plug all of your holding with dollar amounts on the instant x-ray tool on Morningstar's websight. How does the style box, market capitalization, and sector exposure compare with the total US stock market? You also may be able to put this into a portfolio at Morningstar, and it will tell you how it performed daily.
Will try this. I have premium for another month. :)
I also made some edits in original post.
User avatar
Topic Author
1030danielle
Posts: 167
Joined: Fri Jul 15, 2016 12:25 pm

Re: Is there value in this basic calculation?

Post by 1030danielle »

averagedude wrote: Wed Jul 28, 2021 4:58 pm Plug all of your holding with dollar amounts on the instant x-ray tool on Morningstar's websight. How does the style box, market capitalization, and sector exposure compare with the total US stock market? You also may be able to put this into a portfolio at Morningstar, and it will tell you how it performed daily.
Will try this. I have premium for another month. :)
I also made some edits in original post.
User avatar
Topic Author
1030danielle
Posts: 167
Joined: Fri Jul 15, 2016 12:25 pm

Re: Is there value in this basic calculation?

Post by 1030danielle »

lazynovice wrote: Wed Jul 28, 2021 5:03 pm Unless you own the exact same dollar amount of each stock and you continue to own the same dollar amount of each, this is bad math. If you own $10,000 of Facebook and it goes up 5% and you own $100,000 of ExxonMobile, and it goes up 1%, your portfolio did not increase by 3%.
What if I am measuring how much the percent change as shown in Vanguard? For example, at this moment, AAPL is up 0.94%, according to Vanguard. VTIAX is up 0.35%. Am I comparing apples to apples (oh, ha ha ha) when I say Apple is doing better than total stock market index? So if I take that "percent change" for all my individual stocks average it out, can I not compare it to "benchmark" index fund?
User avatar
Topic Author
1030danielle
Posts: 167
Joined: Fri Jul 15, 2016 12:25 pm

Re: Is there value in this basic calculation?

Post by 1030danielle »

asset_chaos wrote: Wed Jul 28, 2021 6:30 pm Even if you decide to keep the 27 stocks, make sure their dividends go to your settlement fund (don't reinvest in the individual stocks) and reinvest the money in your index funds.
Hmmm ... interesting. That makes sense. Thanks.
I also made some edits in original post.
User avatar
Topic Author
1030danielle
Posts: 167
Joined: Fri Jul 15, 2016 12:25 pm

Re: Is there value in this basic calculation?

Post by 1030danielle »

investorpeter wrote: Wed Jul 28, 2021 6:23 pm Yes, there is value in tracking the performance of your individual stock portfolio, but you want to track more than daily performance. You want to track performance over longer periods (1 mo, 3 mo, YTD, 1 year, 3 year, 5 year, etc.). If your stock brokerage doesn't have a performance function, the easiest way to track performance that I have found is to use the free Morningstar portfolio manager tool. https://www.morningstar.com/portfolio-manager You enter your stocks, purchase dates, and purchase price, and then select the index to compare against.

There is also a way to do what you suggest about calculating daily change using Google Sheets, and I do that also as a way of tracking net worth, and comparing daily change relative to the SP500. As others have noted, you want to track the daily change in percentage of your overall portfolio, not the average change of each stock. Google Sheets can pull the daily stock price as well as daily dollar and daily percentage change for you, so it is not that difficult to figure out how to calculate the daily percentage change in your portfolio, and compare to an index such as the SP500. Then you can also go crazy with conditional formatting, etc.
I might play around with google sheets. Thanks.
User avatar
Topic Author
1030danielle
Posts: 167
Joined: Fri Jul 15, 2016 12:25 pm

Re: Is there value in this basic calculation?

Post by 1030danielle »

dbr wrote: Thu Jul 29, 2021 8:26 am
Of course the result is going to be pretty much meaningless as any kind of justification as the outcome will just show that different portfolios produce different results except when they don't.
Sigh. Yes. Thank you. :)
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Is there value in this basic calculation?

Post by dbr »

1030danielle wrote: Thu Jul 29, 2021 12:52 pm
lazynovice wrote: Wed Jul 28, 2021 5:03 pm Unless you own the exact same dollar amount of each stock and you continue to own the same dollar amount of each, this is bad math. If you own $10,000 of Facebook and it goes up 5% and you own $100,000 of ExxonMobile, and it goes up 1%, your portfolio did not increase by 3%.
What if I am measuring how much the percent change as shown in Vanguard? For example, at this moment, AAPL is up 0.94%, according to Vanguard. VTIAX is up 0.35%. Am I comparing apples to apples (oh, ha ha ha) when I say Apple is doing better than total stock market index? So if I take that "percent change" for all my individual stocks average it out, can I not compare it to "benchmark" index fund?
You can do the math to make any comparison you want. The arithmetic you suggest would be a comparison of the index to a portfolio containing equal dollar amounts of each stock. If that is what a person wants to know, then you can do that. Presumably your portfolio does not contain equal allocations to each stock so the comparison would not reflect how your portfolio compares to the market.

If you want to compare the relative daily change (%) in one single investment (AAPL) to another single investment (VTIAX) that is certainly something that can be done and it means Apple returned more that day than did VTIAX, assuming there wasn't a distribution issued by one that has to be accounted for.

It might be useful to explain what you actually want to know.
investorpeter
Posts: 609
Joined: Sun Jul 31, 2016 5:46 pm

Re: Is there value in this basic calculation?

Post by investorpeter »

1030danielle wrote: Thu Jul 29, 2021 12:57 pm
investorpeter wrote: Wed Jul 28, 2021 6:23 pm Yes, there is value in tracking the performance of your individual stock portfolio, but you want to track more than daily performance. You want to track performance over longer periods (1 mo, 3 mo, YTD, 1 year, 3 year, 5 year, etc.). If your stock brokerage doesn't have a performance function, the easiest way to track performance that I have found is to use the free Morningstar portfolio manager tool. https://www.morningstar.com/portfolio-manager You enter your stocks, purchase dates, and purchase price, and then select the index to compare against.

There is also a way to do what you suggest about calculating daily change using Google Sheets, and I do that also as a way of tracking net worth, and comparing daily change relative to the SP500. As others have noted, you want to track the daily change in percentage of your overall portfolio, not the average change of each stock. Google Sheets can pull the daily stock price as well as daily dollar and daily percentage change for you, so it is not that difficult to figure out how to calculate the daily percentage change in your portfolio, and compare to an index such as the SP500. Then you can also go crazy with conditional formatting, etc.
I might play around with google sheets. Thanks.
Good luck. Here is the help page for the "GOOGLEFINANCE" function: https://support.google.com/docs/answer/3093281?hl=en. I have mine set up with columns for ticker, shares owned, stock price, value of shares owned, % of portfolio, day $ change, and day % change Then you just sum up the day $ changes for all stocks and divide by the sum of value of shares owned for all the stocks. Then I compare that ratio to the daily % change for SPY (or VOO or VTI or whichever ETF you wish to benchmark) to see how I did each day relative to the SP500. Conditional formatting is helpful for getting a quick sense of which stocks did well and which did not.
lazynovice
Posts: 3369
Joined: Mon Apr 16, 2012 10:48 pm
Location: Denver area. Former Texan.

Re: Is there value in this basic calculation?

Post by lazynovice »

1030danielle wrote: Thu Jul 29, 2021 12:52 pm
lazynovice wrote: Wed Jul 28, 2021 5:03 pm Unless you own the exact same dollar amount of each stock and you continue to own the same dollar amount of each, this is bad math. If you own $10,000 of Facebook and it goes up 5% and you own $100,000 of ExxonMobile, and it goes up 1%, your portfolio did not increase by 3%.
What if I am measuring how much the percent change as shown in Vanguard? For example, at this moment, AAPL is up 0.94%, according to Vanguard. VTIAX is up 0.35%. Am I comparing apples to apples (oh, ha ha ha) when I say Apple is doing better than total stock market index? So if I take that "percent change" for all my individual stocks average it out, can I not compare it to "benchmark" index fund?
We may be talking past each other but you have to do a weighted average not a straight average. If one holding is larger than another you cannot get to a correct return percentage by taking a simple average. In my example-

100k x 1%= 101k
10k x 5%= 10.5k

$1.5k return on 110k is 1.4%

You are describing it as (1% + 5%)/2= 3%

See the difference?
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Is there value in this basic calculation?

Post by dbr »

You can, of course, just average the % returns and it would be an average over data elements of a list of stocks. It would not be the return of a portfolio of a certain allocation of all those holdings. If the statistic of interest is what is the average return of stocks like those one could do as the OP suggested. So the question is what is one trying to learn.
User avatar
firebirdparts
Posts: 4413
Joined: Thu Jun 13, 2019 4:21 pm
Location: Southern Appalachia

Re: Is there value in this basic calculation?

Post by firebirdparts »

You are not exactly comparing apples to apples because of the dividends (runs from the room, dons flame-proof suit). You could, but you have to spread out the effect. A year is enough time.
This time is the same
User avatar
Topic Author
1030danielle
Posts: 167
Joined: Fri Jul 15, 2016 12:25 pm

Re: Is there value in this basic calculation?

Post by 1030danielle »

lazynovice wrote: Thu Jul 29, 2021 5:42 pm
We may be talking past each other but you have to do a weighted average not a straight average.
I think I get it now. For example, if I had 2 shares (at $1 each) of Company X, and they went up 50%, and I had 1000 shares ($1 each) of Company Z that went up 10%, the average increase of the 2 is not 30%. I have to account for the fact that I carry more “weight” of Company Z.
Right?
lazynovice
Posts: 3369
Joined: Mon Apr 16, 2012 10:48 pm
Location: Denver area. Former Texan.

Re: Is there value in this basic calculation?

Post by lazynovice »

1030danielle wrote: Sun Aug 01, 2021 11:45 am
lazynovice wrote: Thu Jul 29, 2021 5:42 pm
We may be talking past each other but you have to do a weighted average not a straight average.
I think I get it now. For example, if I had 2 shares (at $1 each) of Company X, and they went up 50%, and I had 1000 shares ($1 each) of Company Z that went up 10%, the average increase of the 2 is not 30%. I have to account for the fact that I carry more “weight” of Company Z.
Right?
Right
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Is there value in this basic calculation?

Post by dbr »

1030danielle wrote: Sun Aug 01, 2021 11:45 am
lazynovice wrote: Thu Jul 29, 2021 5:42 pm
We may be talking past each other but you have to do a weighted average not a straight average.
I think I get it now. For example, if I had 2 shares (at $1 each) of Company X, and they went up 50%, and I had 1000 shares ($1 each) of Company Z that went up 10%, the average increase of the 2 is not 30%. I have to account for the fact that I carry more “weight” of Company Z.
Right?
Right, if you want to know how your portfolio is performing.

If the question were what is the average rate of return of stocks of some type in a list of stocks, the more meaningful description would probably be to just take the simple average of the percents as you originally proposed.

It isn't completely clear if you want to know about your particular portfolio or about the behavior of a list of stocks.

Another possibility would be the percents weighted by the capitalization those stocks have in the market. That would be information about how that piece of the market behaves compared to some other set of stocks or to the whole market.
Post Reply