In a time before mobile phones and coast-to-coast cell coverage, roadside diners and gas stations did good business selling fold-out maps to the travelers who passed through their towns. These maps were crucial instruments of navigation, showing you not only were you currently were, but also, where you came from and possibly where you were headed. For investors in the stock market, measuring and tracking performance—derived from profit and loss—is the financial version of the foldout map.
The simplest way to track performance is to mark your account balance and then compare it to your current balance, excluding any funds deposited or withdrawn, on whatever period you wish, such as daily, month, quarterly, etc. Even casual investors typically start the New Year by noting their account balance and checking it periodically to see how they’re doing.
Understanding the Calculations
However, if you’re a more active trader or want to drill down deeper on your positions, there are a number of other options for tracking performance, but first, let’s familiarize ourselves with some terms and how to access them on the thinkorswim® platform from TD Ameritrade.
PROFIT/LOSS (P/L) DAY: P/L Day is the amount of money made or lost on your position from last night’s close to the current mark plus any intra-day profit and loss. You can see the current price for any stock or option in your position on the ‘Position Statement’. You can also see the original execution price for any stock or option in your position by going to the Monitor tab and left clicking on the P/L Day dollar amount.
PROFIT/LOSS (P/L) OPEN: P/L Open is the amount of money made or lost on your position since the inception of the trade. You can see execution price for any stock or option in your position by going to the Monitor tab and left clicking on the P/L Open dollar amount.
PROFIT/LOSS (P/L) YEAR-TO-DATE (YTD): P/L YTD is the amount of money made or lost in a particular underlying security in the current calendar year. It includes the P/L for all open positions and any closed positions made for a specific stock or index done in a calendar year.
PROFIT/LOSS (P/L) %: P/L % calculates the percentage of money made or lost as a function of your execution price. This takes P/L open as the numerator and your execution price as the denominator. Please keep in mind that when it comes to options, this will only calculate the P/L of single options and thus, excludes spreads.
These four different calculations work in combination with each other and all can be present, and active, in your portfolio at the same time. For example, let’s say that on the first trading day of the year you start with $100,000 in your account and no open positions. You then buy 500 shares each of ABC and XYZ stock, both of which are trading for $10.00. Assuming both stocks immediately go up $1, your profit/loss would look like this:
|Ticker ABC||Ticker XYZ||Combined|
Now let’s say the following day, shares of ABC drop 50 cents per share, and you decide to sell it. Meanwhile, the XYZ share price was unchanged. Your P/L would like look like this:
|Ticker ABC||Ticker XYZ||Combined|
Creating a Performance Matrix
As the examples above illustrate, you can mix and match these metrics to track the type of performance that matters most to you. If you’re a day trader, you might be more focused on daily and open P/L, whereas a long-term investor might be more concerned with their YTD P/L.
Another way to track performance is to differentiate between open positions and closed positions. With open positions, you can create subgroups focused on concepts like “short-term,” long-term,” “speculative,” “value,” or any number of criteria, and then add the appropriate positions to each. This helps to keep your positions organized and gives you the ability to track performance on each subgroup separate from one another.
For closed positions, one way to track performance is to download them into a spreadsheet and sort profitable trades from unprofitable ones.
Tracking investment performance can be one of the more powerful things you can do as an investor. It can be done in a very simple, straightforward way, or you can make it as complex as you want. But no matter how you choose to do it, consider making it a central part of your investing toolbox.