Compare my variable portfolio performance with S&P 500?

Question

The question may appear simple at first but I really cannot come up with a quick and easy way to compare my performance as a trader Vs S&P500. For the sake of simplicity, I am analyzing my portfolio value on a monthly statement basis instead of daily. I buy and sell stocks and my investment portfolio value may go up or down based on how much I have invested for that month. Now I want to translate this portfolio performance into a simple YTD profit percentage so that I can compare that with that of S&P500. The important thing to consider is that I am not making all of my investment at once at the beginning of the year, but I want a metric that gives me an equivalent % if I had invested all of it at beginning of the year and have the cumulative profit at the end of the year.

Month       Invested
January 
February    $500 (bought)
March       $1500 (bought)
April   
May 
June        $1000 (bought)
July    
August  
September   
October     $-2000 (sold)
November    
December    $1000 (bought)
Profit      $350

The data above shows my amounts that I invested and sold for each month in a year. These investments are not necessarily in a single stock, I buy many companies and sell that I don't like or got way too high. At the end of the year I had a profit of $350. How do I now say that for the year I had x% profit so that I can compare that with S&P500 for that year?

Answer 1

To compare your performance with the S&P 500, I think you have to work out what you would have got at the end of the year if you had simply invested everything in the S&P 500 at the time you invested it in your portfolio (simply looking at "what the S&P 500 did" over the year is not, I think, the right thing to do).

This randomly-found site, gives historic prices for the S&P 500. Since you've given a whole year of figures, I've used the prices from 2017 and assumed you invested the amounts shown on the first of each month. The following table shows how many "nominal shares" in the S&P 500 you could have bought each month and their value as at 1^st January this year (prices are to nearest $; number-of-shares to 3dp):

Month       Invested   S&P 500 Price  Nominal Shares
---------   --------   -------------  --------------
February         500           2,330           0.215
March          1,500           2,367           0.634
June           1,000           2,434           0.411
December       1,000           2,664           0.375
              ------                          ------
Total          4,000       Total "Shares"      1.635

               S&P 500 as at 1st Jan 2018      2,790
                 Value as at 1st Jan 2018      4,560
                        Profit (on 4,000)        560 or 14%

Note: I have not included the sale from your portfolio because you said you sell when you either no longer like a stock, or the price is high-enough to warrant realising gains. I think the correct way to compare your strategy with investing in the S&P 500 is to assume you left all monies invested.

(If you had sold $2,000 of your investment in October (either because you needed some "ready money", or because you thought the S&P's performance warranted selling), then: the S&P price on Oct 1st was $2,557 so you would have had to sell 0.782 "shares" to extract $2,000. This would have left a total of 0.852 shares worth $2,378 on Jan 1^st 2018, for a profit of $378 or 9.45%).

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How does this compare with your strategy? It depends on whether your situation matches what I think your figures are saying or not...

If I take your figures at face value, it appears that you've done considerably better than the S&P 500 – perhaps too much better, which is why I have some doubts whether what you mean by them matches what I think they mean.

• If the $350 is the "paper profit" on your portfolio at the end of the year (that is, the value of your remaining shares as at Jan 1^st less whatever you paid for them), and you extracted $2,000 from that portfolio during the year, then it would seem you made a total profit of $2,350, or a very welcome 59% profit.

• If the $1,000 you invested in December was part of the $2,000 extracted in October, and not "new money", then you're still well ahead of the S&P 500, but not as dramatically: your profit would have been $1,350 or 34% – over double the S&P.

• If the $350 is actually your total profit, including the $2,000 you extracted, then your profit would simply be $350 or 9% (very slightly below the figure if you had invested everything in the S&P and liquidated $2,000; a little under two-thirds of what you would have got if you'd left everything in the S&P 500).

Answer 2

You could look at the total amount of money you had available for investment at the beginning of the year, and compare your performance to what would have happened had you put it all in the S&P 500 at the beginning of the year.

In your example, although you only bought 500 shares in February, you still had enough money to buy 1500 more in March and 1000 more in June. That means in February you had enough money to buy more than what you actually spent. You effectively made a choice to "invest" some of it in cash rather than buying into the S&P 500 (or buying more of whatever shares you did buy). So you can compare your return with what you would have gotten had you invested everything into the S&P 500 right at the beginning.