Replies to post #5914 on A.I.M. Users Bulletin Board (AIMUSERS)

[Toofuzzy]

Hi Karel: I like it! I want it!

>>>There is an amusing way to calculate avergage share price in AIM. Take Initial Investment (cash+equity) - Current Cash Reserve. That's is the amount of money that you spent on equity. Divide by the number of shares. Some people don't like this, as all your profits lower the average share price, and may even lead to negative 'average' prices.<<<

I hope I can have a negative cost / share someday!

But seriously I do not know how else you would do it if you were going in and out of the same shares.

Maybe: (cost of all purchases - all sales)/ # SHARES still owned. I think that would work. Make sure you take trading costs into account!

Tom Have you been doing this long enough to have a negative cost / shares?

Toofuzzy


Take the road less traveled. It will make all the difference.

[Conrad]

Karel, Lou Dina's question raised an important point. I see it the way you do it:

You hit upon one of the many things that become more Fuzzy(for others) the longer someone else studies it. The question on averages, as you heave pointed out here, requires a definition before you can calculate it in a meaningful way(so that others can understand it).

The same problem arises with the question: "What is the Yield on an investment?" It relates to the Average Share Price that AIMers often talk about.

The price one pays for an investment over, say several years, is indeed strongly depended on the definition what you pay for, just like this is so for yield, or ROI:

(What you get)/(What you pay for)

For a time-averaged investment(or for any question on yield, or efficiency):

Ia=(I1*T1+I2*T2+I3*T3+ . . .In*Tn)/Period

one would indeed get a negative average investment if a lot of profits are taken out(withdrawals being negative investments).

This then ends up as Ia/N being a negative average share price. This would be a useful metric to indicate that the Yield of the AIM System exceeds 100%.

So, with any other approach one would need to define for himself first what he considers what it is he paid for the shares. It is easy after the investors himself answers this question. For some people the price paid is only the sum of the actual purchases; For Winners the price they paid is a negative investment, and for investors that lost their shirt and pants the price they paid is everything they lost!

Conclusion: A Negative Average Price can be interpreted as a Yield > 100% but also as a Total Loss!

It depends on the definition thay you like the best!



Conrad