WHEN DO YOU MAKE PROFITS / LOSSES ?

[whiteheron]

I would like to know the opinions of other ShareTrader contributors as to when they consider profits or losses are made on shareholdings
To be specific , are they made progressively as share prices rise above or fall below purchase price or are they made only when the shares are sold and the money has been received ?

I have my opinion on this but I would not like to sway the opinions of others at this stage so will leave stating my opinion until after everyone has had a fair go at stating their views

I have no doubt that a variety of replies will ensue , that is if anybody is interested

[Halebop]

I essentially keep two sets of books. I track the current value of my investments as a broad measure of net worth (this is not 100% accurate as I don't record potential taxation liability on trades).

Then for taxation purposes I record book value as trading profits are not taxed until a sale is effected. This really only gets compiled approaching tax time though.

[Packersoldkidney]

Sold, definitely sold. The money isn't money till its in your mitts. And it aint a loss until you sell the dog you bought into and who wrought the unhappy experience of lost cash upon your bank account or wallet.

[Revhead]

Agree with POK. The outcome of the trade is determined when the stock is sold! The fact that the price may have been much higher the week before you sold is irrelevant. It's what you get in the bank that counts.

Rev

[Snow Leopard]

I am in the progressive camp. As the price changes your profit or loss changes. The day you sell is the day you realise same.

[KJ]

I treat short term trades and LT portfolio differently.

Short term-as on average I hold these for less than 2 mths & I record profits or losses when sold.

With my LT portfolio I take the progressive approach.This is better because I may hold some of these for several yrs.If I didn't do it this way and used cost, I would be looking at a misleading picture eg I would have values like-TPW $2.12,HBY $3.80 etc.
It also allows you to know how you are going on a PA basis.

[Phaedrus]

I would assume that everyone regularly marks their portfolio to market. This is the only sensible way of tracking your performance. Personal preference and trading style will dictate whether you do this hourly, annually, or something in-between.

I do not subscribe to the view that profits and losses somehow only become "real" when you sell. This absurd belief was summed up by LMFM when (in a PPG thread) he wrote "You only lose when you sell for less than you brought and you not losing if you holding."

My response was :-
"Paper" losses are, unfortunately, only too real. You HAVE made a loss and whether you choose to crystalise it at any point is immaterial. It is interesting to note that you make the same error of logic regarding profits when you say "you not making money unless you are selling". Nonsense. Anyone that has been holding a steadily appreciating stock for many years has made a lot of money - whether they sell or not. You have made a lot of money on your house - right? It would be silly to pretend that you had made nothing unless you actually sold it. The value is there and can easily be turned into cash at any time by selling at the market rate - just like stocks.

[zyreon]

mmm, when you purchase a share that is a sunk cost. You can not get it back. You can only get what someone is bidding.

[duncan macgregor]

I consider profits and losses at that moment in time at the buyers price. If i sell its confirmed, if i hold then its an on going investment. The tax only gets paid on the sale if taxable but to keep track its the price of the moment that counts macdunk

[Westie]

quote:This absurd belief was summed up by LMFM when (in a PPG thread) he wrote "You only lose when you sell for less than you brought and you not losing if you holding."

As an adjunct to Phadreus' comment, and for the sake of useless trivia, psychologists call this type of thinking a "loss aversion bias" (being somewhat acquainted with the field). It arises from people weighing up losses more heavily than gains. Having this belief tends to lead to people making irrational sell/retention decisions, eventually selling winners and holding onto underperformers, "cutting the flowers and watering the weeds" in Peter Lynch's words.

So while it is probably good for ones psychological health to delude oneself with this belief, it isn't particularly good for ones finanical health