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| Benjamin |
 Posted: Fri May 06, 2005 4:43 am Post subject: Our First Competition is underway! |
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Administrator
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Consider it official!
Everything seems to be working so we are going to run a competition until the end of this month as a trial run. Next month there will be a much more substantial prize, but this month it's just for a $10 token prize payable via Paypal to the biggest percentage portfolio gain. We don't want to promise a big prize for this month because this is still really a beta test. But you have to compete for something! King
So just to make the details clear:
- $10 Prize
- Winner will be the user with the greatest % gain
- Winner will be announced in this post. If the winner does not reply to claim the prize in this post within 5 days the prize will be awarded to the 2nd place winner and so on.
If you guys have any idea's on how to make the competition better as we go along please let us know! |
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| thrilla |
| Posted: Fri May 06, 2005 4:53 am Post subject: |
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Investing Sr. Associate
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Would it be better to have rankings based on total return? Meaning cash and stocks? If you make a bad choice and sell the stock, the negative return doesn't show up on the portfolio percentage. Likewise, if you make a good choice and sell the stock while its up, the increased cash doesn't show up as an increase in portfolio percentage. What do you guys think?
I think one of the problems with this method however, is that it leads to an % increase when you earn $postings by posting. |
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| Benjamin |
| Posted: Fri May 06, 2005 5:06 am Post subject: |
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This is from
http://www.einvesting.com/TradingSim.php
As to what is currently being calculated.
1. The "Portfolio %" calculated in the forums is based on all holdings, both open and closed positions.
2. The "%" in your Portfolio is for open positions only.
3. The "%" in your Trade History is for closed positions only.
4. The "%" on the Trading Sim Rankings page is for all holdings, both open and closed.
5. The calculation for return is net gain (loss) / cost. Suppose you opened a position of 100 shares of stock for $10 a share. The stock goes up $1. Your gain is $100, your cost was $1,000, your return is 10%. Suppose the stock goes down $2 instead. Your gain is -200, divided by cost of $1,000, for a net return of -20%.
6. For net gain (loss) calculations for open positions the most recent quote is used to caluclate the value. For closed positions the sold at price determines the gain (loss). |
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| Benjamin |
| Posted: Fri May 06, 2005 5:17 am Post subject: |
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Administrator
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| thrilla wrote: |
I think one of the problems with this method however, is that it leads to an % increase when you earn $postings by posting. |
Yeah, we have to be careful not to turn it into a posting competition, but there are still benefits to posting and collecting eInvesting$ such as spreading the money around and try crazy things. |
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| thrilla |
| Posted: Fri May 06, 2005 5:54 am Post subject: |
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Investing Sr. Associate
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| eInvesting Admin wrote: | This is from
http://www.einvesting.com/TradingSim.php
As to what is currently being calculated.
1. The "Portfolio %" calculated in the forums is based on all holdings, both open and closed positions.
2. The "%" in your Portfolio is for open positions only.
3. The "%" in your Trade History is for closed positions only.
4. The "%" on the Trading Sim Rankings page is for all holdings, both open and closed.
5. The calculation for return is net gain (loss) / cost. Suppose you opened a position of 100 shares of stock for $10 a share. The stock goes up $1. Your gain is $100, your cost was $1,000, your return is 10%. Suppose the stock goes down $2 instead. Your gain is -200, divided by cost of $1,000, for a net return of -20%.
6. For net gain (loss) calculations for open positions the most recent quote is used to caluclate the value. For closed positions the sold at price determines the gain (loss). |
I think one of the problems with determining the rankings this way is that it doesn't determine the true increase in portfolio value. For example...if you started out with $1000 and bought a stock with it and it goes up to $1210, your % gained would be 21%.
If instead, you bought and sold many different transactions, the calculations would be a little different. Let's say you took the $1000, bought a stock and it increased by 10% to $1100. Then do it again, and it increases another 10% to $1210. How would the system rank your % of gain? Would it rank it correctly as an increase of 21% in portfolio value? |
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| MrInvestor |
| Posted: Fri May 06, 2005 5:59 am Post subject: |
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Investing Manager
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| Benjamin |
| Posted: Fri May 06, 2005 6:01 am Post subject: |
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As a matter of fact it should!  But we are testing it still.
The Percentage gain is calculated as gain(loss) / $invested. So dollars in the "bank" don't count at all, either as a plus or minus.
Suppose I have 100K eInvesting$. I invest 1000, it's worth 2000 (a return of 1000). I have a 100% return, even though my net gain of $1000 was a fraction of my total cash. It's what you do with what you actually invest that counts, not the total cash position. In this way you will reward (punish ) people that put their cash to work instead of sitting on it.
It also isn't affected by deposits. If I start a month with $5,000 e$ and post up a storm, and end the month with $20,000 eInvesting$, my net gain is zero. I didn't invest anything, I just deposited more funds. Now if I bought stuff in the market with the initial $5K and the various holdings are now worth $7500 then my net gain for the month is
2500 / 5000 or 50%. My 20K in the bank is nothing.
If you take the return / holding period (days) * 365 then you get a rough estimate of annualized return. So if something goes up 10% in one month the expected annualized return is 120%. Of course a month can skew results as it's too short a time span. Another investment that goes up 1.5% every month like clockwork is potentially more valuable in the long run.
Bottom line is that we have everything we need to calculate the correct (in our opinion) return %. We don't care what the cash balance is, just how much you invested and what it's worth now.
Example, 3 stocks.
A Cost 1000 current value 1000 return 0% (net 0)
B Cost 1000 current value 500 return -50% (net -500)
C Cost 100 current value 150 return 50% (net +50)
If you simply add up the percentages, I'm breaking even. But it doesn't work that way. You add up the net costs, net gains, and then divide. My percentage for this portfolio is net gain (-450) / cost (2100) or -21%. I didn't break even, because my 50% "loss" was bigger than my 50% "gain".
Hope this helps explain a little better how we are calculating.  |
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| thrilla |
| Posted: Fri May 06, 2005 6:49 am Post subject: |
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Actually, I don't believe that it will work out exactly as you have planned. Consider these two scenarios (If I have misunderstood the way you have calculated it, then please correct me):
Let's say two investors have the same amount of money to start with ($1000)...
Investor A:
Purchased ABC for $1000
Current value for ABC for $1500
Cost = $1000 Current Value = $1500 Return = 50%
Investor B:
Purchased ABC for $1000
Sold ABC for $1500
Cost = $1000 Current Value = $1500 Return = 50%
Purchased XYZ for $1500
Sold XYZ for $2250
Cost = $1500 Current Value = $2250 Return = 50%
Now, both investors started out the the same money, but Investor A has equity worth $1500 in his portfolio and Investor B has equity worth $2250 in his portfolio. However, the stock simulator will consider them equal with 50% return.
I am assuming the simulator will calculate it like this:
Investor A:
ABC: Cost = $1000 Current Value = $1500 Return = 50%
Total: Cost = $1000 Current Value = $1500 Return = 50%
However, for Investor B, I believe the simulator currently calculates it like this:
ABC: Cost = $1000 Current Value = $1500 Return = 50%
XYZ: Cost = $1500 Current Value = $2250 Return = 50%
Total: Cost = $2500 Current Value = $3750 Return = 50%
According to the sim, these two are both equal. However, if you were looking for an investment, which one is more attractive (all else equal)? |
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| Dave Rathbun |
| Posted: Fri May 06, 2005 7:37 am Post subject: |
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CFO
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| thrilla wrote: | Actually, I don't believe that it will work out exactly as you have planned. Consider these two scenarios (If I have misunderstood the way you have calculated it, then please correct me):
Let's say two investors have the same amount of money to start with ($1000)...
Investor A:
Purchased ABC for $1000
Current value for ABC for $1500
Cost = $1000 Current Value = $1500 Return = 50%
Investor B:
Purchased ABC for $1000
Sold ABC for $1500
Cost = $1000 Current Value = $1500 Return = 50%
Purchased XYZ for $1500
Sold XYZ for $2250
Cost = $1500 Current Value = $2250 Return = 50%
Now, both investors started out the the same money, but Investor A has equity worth $1500 in his portfolio and Investor B has equity worth $2250 in his portfolio. However, the stock simulator will consider them equal with 50% return. |
You are ignoring one important factor in your example: time.  Details in a moment.
Every transaction is separate from the other. Your total return is based on the cost of your investments compared against the gain (loss) from those investments. Haven't you heard that to recover from a 50% loss you need a 100% gain?
If I purchase stock at 1000 and sell at 500 I have a 50% loss.
I purchase the stock at 500 and sell at 1000 I have a 100% gain. But what is the "net" to my portfolio? It's not +50%, it is exactly zero. Ouch. But as you can see, percentages are not "addable".
Suppose I make one trade where I purchase 1000 of stock and sell it for 1100. That's a 10% return. Now I take the 100 I made and plop it down on black and let the wheel spin. I lose, of course. 100% loss on the investment. What's the net to my portfolio? Zero. Take the total invested (1100) and the net gain (loss) of -100 and do the calculation, see what you get.
The only way to do this is consider each transaction as a set of raw numbers and ignore the "gross" change in the portfolio value.
Take your scenario again, except the investor starts with 2500 in their account. They buy two stocks, for 1000 and for 1500. The sell the 1000 stock for 1500 and sell the 1500 stock for 2250. What is their net gain? 50%. The gain on one transaction has absolutely nothing to do with the other.
Where the numbers will be different is in an "annualized" return. Go back to your scenario again. Let's say that the time period is 1 year to start with. The first investor makes 1000 into 1500 for an annual return of 50%. Now the next investor buys stock for 1000 and sells after six months for 1500, purchases stock for 1500 and sells for 2250 at the end of the year. Yes, each investment they made was 50% return, but their "annualized" return is 100%. Investment return (50%) divided by the fraction of the year (1/2) becomes a 100% return. That's where your missing increase in percentage is coming from.
Last edited by Dave Rathbun on Fri May 06, 2005 8:13 am; edited 1 time in total |
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| Benjamin |
| Posted: Fri May 06, 2005 8:13 am Post subject: |
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Well said Dave, thanks for that!
I'm sure we'll all get a better feel for what’s happening as we use it. If anyone notices any anomalies please let me know.
This is why the prize money this month isn't very high. Gives all all a chance to feel the system out. |
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| thrilla |
| Posted: Fri May 06, 2005 8:43 am Post subject: |
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Investing Sr. Associate
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| Dave Rathbun wrote: | You are ignoring one important factor in your example: time. Details in a moment.
Every transaction is separate from the other. Your total return is based on the cost of your investments compared against the gain (loss) from those investments. Haven't you heard that to recover from a 50% loss you need a 100% gain?
If I purchase stock at 1000 and sell at 500 I have a 50% loss.
I purchase the stock at 500 and sell at 1000 I have a 100% gain. But what is the "net" to my portfolio? It's not +50%, it is exactly zero. Ouch. But as you can see, percentages are not "addable".
Suppose I make one trade where I purchase 1000 of stock and sell it for 1100. That's a 10% return. Now I take the 100 I made and plop it down on black and let the wheel spin. I lose, of course. 100% loss on the investment. What's the net to my portfolio? Zero. Take the total invested (1100) and the net gain (loss) of -100 and do the calculation, see what you get.
The only way to do this is consider each transaction as a set of raw numbers and ignore the "gross" change in the portfolio value.
Take your scenario again, except the investor starts with 2500 in their account. They buy two stocks, for 1000 and for 1500. The sell the 1000 stock for 1500 and sell the 1500 stock for 2250. What is their net gain? 50%. The gain on one transaction has absolutely nothing to do with the other.
Where the numbers will be different is in an "annualized" return. Go back to your scenario again. Let's say that the time period is 1 year to start with. The first investor makes 1000 into 1500 for an annual return of 50%. Now the next investor buys stock for 1000 and sells after six months for 1500, purchases stock for 1500 and sells for 2250 at the end of the year. Yes, each investment they made was 50% return, but their "annualized" return is 100%. Investment return (50%) divided by the fraction of the year (1/2) becomes a 100% return. That's where your missing increase in percentage is coming from. |
Actually, my example considers the time factor, which is why I said "all else equal". Both examples are supposed to be over the same time frame. I do not believe that the simulator takes into account that the capital is continually compounded if completely sold and reinvested.
Go back and take a look at my example again. Let's say for example, that they both take place in a span of a year. At 6 months, both investors have ABC @ $1500. At this point both investors have the same amount of money and same % realized. However, investor B decides to sell ABC and continues to invest in XYZ and gains another 50% by the end of month 12. However ABC remains stagnant at $1500 by the end of month 12.
I am stating that the simulator will calculate these to both be returns of 50%. |
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| MrInvestor |
| Posted: Fri May 06, 2005 8:52 am Post subject: |
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Investing Manager
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This is starting to sound more like a debate in Philosophy than math.
I don't think this will affect us using the board really. |
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| Dave Rathbun |
| Posted: Fri May 06, 2005 8:53 am Post subject: |
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CFO
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| thrilla wrote: | | I am stating that the simulator will calculate these to both be returns of 50%. |
And the return on the investment is 50%, is it not?
ABC went from 1000 to 1500 over a year.
XYZ went from 1500 to 2250 over six months.
Both are 50% returns.
Compare that to an investor that put 1000 into QRS that was worth 2250 over the same time frame. That return is 125%. Why not 100? The other two trades ended up at the same place, yet they were 50%? 50 + 50 = 100, not 125... ?
There is no "connection" between trade A and trade B.
Having gone around and about with this... how do you suggest that the calculation be done? Remember that cash "inflows" due to posting and whatnot are happening in your portfolio, so you can't just take value and time "X" and value at time "Y" and compare the two. Cash deposits or withdrawals are not considered a "return". Suggestions? |
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| thrilla |
| Posted: Fri May 06, 2005 10:56 am Post subject: |
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Investing Sr. Associate
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| Dave Rathbun wrote: | | thrilla wrote: | | I am stating that the simulator will calculate these to both be returns of 50%. |
And the return on the investment is 50%, is it not?
ABC went from 1000 to 1500 over a year.
XYZ went from 1500 to 2250 over six months.
Both are 50% returns.
Compare that to an investor that put 1000 into QRS that was worth 2250 over the same time frame. That return is 125%. Why not 100? The other two trades ended up at the same place, yet they were 50%? 50 + 50 = 100, not 125... ?
There is no "connection" between trade A and trade B.
Having gone around and about with this... how do you suggest that the calculation be done? Remember that cash "inflows" due to posting and whatnot are happening in your portfolio, so you can't just take value and time "X" and value at time "Y" and compare the two. Cash deposits or withdrawals are not considered a "return". Suggestions? |
There is a connection between trade A and trade B if they are in the same portfolio and the cash gained from A is used towards B. I am suggesting that they both started with 1000 in the beginning and ended with different amounts in the end. My argument is not how individual stocks are calculated, but how the entire portfolio is calculated. I just think that there might be a slight flaw in how the simulation gives its portfolio return.
It does not calculate on how the portfolio does from the start to the finish, but rather how much the stocks cost. A daytrader who makes many 5% returns on his portfolio would not do as well as a person holding a stock to 6%. I am stating that the calculations should be done on how much a portfolio is worth in the beginning versus how much it is worth in the end (minus the money increased during the time frame due to posts).
The one thing that complicates this problem would be the money made by posting. If it wasn't for that, the solution would be much simpler. |
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| Benjamin |
| Posted: Fri May 06, 2005 11:07 am Post subject: |
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Administrator
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The other problem then would be the fact members can trade their eInvesting$ to other members. You can do that through the donate icon next to their name in their posts and also in their profile.
I think it's nice to be able to donate someone some eInvesting$ for a good tip or advice though. Never know...maybe one day they may have cash value and you can trade them for goods and services with other members...heh. Not anytime soon though. |
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