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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?

user248884
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4 Answers4

59

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.

JoeTaxpayer
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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%.

Bob Baerker
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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.

nanoman
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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!

RalphD
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