Recording Sales

[vrdiver]

In my HYP, sales of shares don't come along very often, but they do happen. I haven't found a satisfactory way to record such events and wondered what others do?

In the specific case of UU, I bought in 2004, again in 2006, and sold some in 2012, as well as having the corporate action in 2018 (convert 22 shares into 17, and pay £1.70 per original share).

The corporate action was treated as a forced sale of the relevant shares at £7.43 per lost share.

I can record a sale as a reduction in cost, (i.e. deduct the proceeds from the total costs) or as an addition to profits (add the proceeds to the dividends received and increase the total receipts). The XIRR is unaffected either way.

The %profit shown is very much affected. If I reduce my base costs (the denominator) my % profit is artificially increased, but if I increase my receipts I show a current cost much higher than the current value, which distorts the picture in respect of shares that have done well (but had a sales activity) versus those that have performed poorly and also show a current value below cost.

Is there a "standard" approach to this?

VRD

[StepOne]

Is there a "standard" approach to this?

No.

I put all sales, dividends, returns of capital, etc, on the same side. So it's only purchases on the left side of the equation. If you start subtracting Sales proceeds from base cost then you can easily get into the situation of having a negative base.

I also like to keep a note of my first purchase price, so I can say to myself - oh, it's 5-bagged since I first bought, even in cases where subsequent disposal/top-ups mean the actual return is less. Makes me feel better about myself

I don't think it really matters though, as long as you are aware of the limitations of using an absolute return figure like this. XIRR, or unitised, figures are better for measuring performance.

StepOne

[tjh290633]

To my mind there are two ways to do this.

The simple one is to add to the cost when shares are bought and deduct from the cost when shares (or rights) are sold or capital is returned. This can lead to a holding with negative cost.

The alternative is to adjust the cost after a sale to what the remaining shares cost, so if you had 1,000 shares which cost £2,000 and you sold 200 for £500, the cost of the remaining 800 shares becomes £2,000*800/1000 = £1,600, not £2,000-£500 = £1,500. This can also lead to a negative cost if cash is returned, as that ought to come out of the original cost.

The cash realised is either withdrawn or retained in the account, to be reinvested.

TJH