Record keeping

Record keeping

A necessity, if you want to keep track of the performance of your investments and as an aid to making sure your tax affairs are in order for stocks outside of an ISA or SIPP.

1. A simple spreadsheet detailing investments that you hold is the first requirement: 

Investment	Purchase Date	Holding	Unit cost P	Cost £	Unit price P
ABC plc (AB)	19 Sept 2012	1000	750	7500	850

 

 The “unit cost” would be the formula (“Cost £”/”holding”)x100.  The next columns will be:

Price £	Gain/Loss £	Gain/Loss %	Portfolio %	Stop Loss	Action
8487.50	987.50	12.5%	8.5%	720	Hold

 

The Price column would be (“Unit price”/100 x “Holding”) - £12.50; the £12.50 would be, for example, dealing cost if you sold.  The others should be self explanatory, the “Portfolio %” has assumed that the total of all your investments are say £100,000.  The “Stop Loss” is set initially at 80% of the cost and is moved up as the price moves up (it never moves down), so ABC plc had been at 900p at some time.  I do not use automatic stop losses, where my broker will sell if my investment hits a particular price, but as an aid to review. 

2. In addition to this individual record keeping, you will want to know how you are performing in total over the years, allowing for additions and withdrawals of cash.  Here we use the unit based method:

Date	Portfolio value £	Units	Unit price	Monthly inc/dec %	Annual inc/dec %
31.05.12	90,000.00	80,000.00	1.125	2.5%	12.5%
30.06.12	95,000.00	80,000.00	1.1875	5.56%	15.00%
10.07.12	5,000.00	84,210.53	1.1875
31.07.12	102,000.00	84,210.53	1.2112	2.00%	16.5%

This spreadsheet will show in the second column the total of the “price £” column from the previous spreadsheet.  The third column starts with the amount that was first allocated to your portfolio, in this case £80,000, but it is shown as units.  The “Unit price” is just the formula “Portfolio value £” / “Units”, so each of the 80,000 units were worth 1.000 on day 1, but now have a higher value of 1.1875 on 30.06.12 as the portfolio has increased. 

On 10.07.12 we add £5,000.00 in cash to the portfolio, the number of units added is £5000.00/1.1875 = 4,210.53 units.  On the 31.07.12 the value of the portfolio increases to £102,000 and the unit price is 1.2112 being 102,000/84,210.53. 

The monthly and annual inc/dec columns are calculated by dividing the unit price for the current month by the unit price for the previous month or year respectively. For example the monthly gain of 2.00% on 31.07.12 is (1.2112/1.1875) – 1.

This unit method of calculation allows for funds to be added or withdrawn from the portfolio while still keeping a check on the performance, obviously if the £5,000.00 was being withdrawn above then 4,210.53 units would be deducted to give 75789.47 units.  If dividends are reinvested, then on the payment dates they need to be treated in the same way as the £5,000.00 cash that was added above.  If dividends are not reinvested, then there is no need to account for them within this record.

The unit price will tell you what the all time gain or loss is.  In the example above, the all time gain is 21.12%.  The nth root, where n is the number of years invested in total, will give you the compound annual growth rate (CAGR) of your portfolio.  So in the case above if the portfolio had been running since 1.08.10, then the 2 year CAGR of the portfolio is (2√1.2112)-1 = 10.05%.

You can also benchmark your results above against a relevant index, such as the FTSE All-share, to provide a relative as well as an absolute performance.

3. You may also want to individually or/and collectively calculate the internal rate of return (IRR) you are achieving on your investments, including the dividend element.

XYZ plc
05-Feb-07	(149,067.06)	75000
13-Jun-07	1,950.00
23-Jan-08	2,175.00
19-Jun-08	2,100.00	7.7%
29-Jan-09	2,250.00	3.4%
18-Jun-09	2,100.00	0.0%
28-Jan-10	2,400.00	6.7%
01-Jul-10	2,400.00	14.3%
27-Jan-11	2,850.00	18.8%
16-Jun-11	2,850.00	18.8%
03-Jan-12	54,262.05	25000
27-Jan-12	3,900.00	36.8%
27-Mar-12	32,987.18	12500
18-Jun-12	1,650.00	15.8%
25-Jan-13	2,662.50	36.5%
08-May-13	172,233.08
IRR	12.8%

   

The above spreadsheet shows a company XYZ plc where a purchase was made on 5 February 2007 of 75000 shares for £149,067.06.  The smaller amounts in January and June each year are the dividends received and the amounts in green the percentage increase over the previous year.  The two large amounts in January 12 and March 12 signify sales of those shares.  So on 8 May 2013 37500 shares were held at a value of £172,233.08 representing an internal rate of return of 12.8% pa.  The IRR is calculated using excel’s XIRR function. 

This is an example where dividends are not reinvested, if you reinvest any of the dividends, show them on the date of reinvestment as a negative and the number of shares purchased.  In the same way, if you buy additional shares show the purchase as a negative on the date they are purchased along with the number of shares bought.

You can obviously do this for each share, but also for your portfolio in total, by showing the cash flows in and out of your portfolio in the same way.

4. Finally you should keep a record of major announcements made – prelims, interims, IMS, acquisitions, disposals, major contracts etc.

Here the objective is to précis within 4-10 lines the main points of the announcement. Especially identify the information that is price sensitive, being potentially value accretive or destructive (I tend to colour the negative points in red, making it easy to identify).  This process will ensure that you read the key announcements and assimilate the important points.  Add any personal comments, but do identify it by colour or italics, so that later you know they are yours not the company’s comments.

So you will then have a chronological list in short form, of all of your investments’ major announcements that take a very short time to review, rather than ploughing through the official data. After a time the colour coding of negative statements will also give you a good visual of the trends in the business.

Once a quarter you should review all your holdings, comparing their current state to the filters that you used to select the investments. This will identify whether the holding is still a value enhancing investment. You should seriously reconsider the status of a holding that no longer meets two or more of your filters.  Make a note in this record of the results of the review and your decision – hold, accumulate, partial sale, full sale.