A practical view of our performance figures

Our model portfolio performance figures are now accessible to anyone online! Backed by the support of our members and guests, these numbers in the model portfolio now can, and in fact will, provide a good picture of how we are doing based on the morning stock market report.
Now, in order to better understand what the numbers in our performance recap mean and apply them in our own dealings, let’s take the model portfolio results from 2001 and put them under the microscope.
We had these totals for the year 2001:

1. Cumulative point total of 215.619
2. Cumulative percentage total of 603.83%
3. Average point gain of 0.914 points over 236 trades
4. Average percent gain of 2.559% over 236 trades
5. Average share price of 36.232 dollars over 236 trades

Let’s get a better grasp of these figures, and consider how they work in the real world by looking at them through different angles:
Take for example the hypothesis that we had always bought 300 shares of every stock we had listed in our morning stock market report. Based on our findings above, it comes down to this:

300 shares X 215.619 points = $64,685.70

This tells us that at 300 shares per stock, no matter the price, our gains by the end of 2001 fall just short of $65,000 (not including commission costs) based on our cumulative point gains for the year, which is good.
Let’s now go to how things would have turned if we had always bought $10,000.00 of each position listed, rather than just relying on a set number of shares. The terms are still fair enough, and using the figures above to compute again, this is what happens:

$10,000 X average percent gain of 2.559% = $255.90

We can see that if we used $10,000 all the time for every trade covered in the report, our average profit for each trade (that’s over 236 trades) would have gone to $255.90 (on average for the year).
You’re probably wondering about the cumulative percentage total figure.  Well, we can talk about that now.  The cumulative percentage column basically represents “all of the percentage yields per trade” added up.  With it, we can figure out the overall yield based on how much money we use “per trade”.  Take another look at the example given above.  We tried using $10,000 per trade and results showed that it came up to $255.90 per trade.  Multiplied by the number of trades we did (236), the total is:

$255.90 X 236 trades = $60,392.40

Notice that we have rounded our figures to 3 decimal places.  With these figures, we can see the correlation between the cumulative percentage total and the total dollar returns in relation to the total dollars “per trade” which we used.  To put it into an equation that’s easy to understand:

($60,392.40 / our $10,000 per trade) = the 603.83% figure

Therefore, the cumulative percentage total number gives us an idea of the “magnification” of the total dollars “per trade” used under the assumption that it was a set value per trade.  With the rounding off to 3 decimal places instead of 4, the figure above is merely a fraction of the whole.

This is great, but you might be asking, “Does that mean that we had a 600% total return for 2001?”  Sadly, no.

The issue of “overall total percentage returns”  presents itself when past performances are evaluated.  However, to  be able to answer this question accurately, we need to start somewhere.  To put it simply, the question becomes gains in relation to a “percentage of what?” when you are speaking about “total” percentage returns. We go back to asking, “How much did we start with and how much was made from that amount using DayTraders.com’s morning report?”

We can’t answer that question for you, because we would need a starting amount to calculate a return from.

Until now, we have only been able to come up with an estimated “total return” based on several different theoretical situations (one using 300 shares per trade; the other using $10,000 for every trade), as you may remember from above.

For us to really figure out the “percentage of what” question, we have to make a rough guess of the question of, “How much money would all this require?” Once we get past that, we can then reckon on percentage digits.

We can begin by trying to figure out how much money would be needed to purchase those 300 shares for each trade. We can come up with an ideal, if not entirely accurate, figure for this.

Say on average there are about 8 open trades going on in the report at any one time. With the numbers listed above, we already know that the average share price per stock in the 2001 report was a little over $36.00 per share. We can then calculate that:

$36.00 X 8 X 300 shares = $86,400 dollars.

Now, that’s getting somewhere. This shows that if we always bought 300 shares of everything in the morning report, it will amount to about $86,400 dollars. We’ll need to answer the question of whether we are talking about using margin here, but for the moment, let’s be comfortable with estimates. When we began this little experiment above, we found out that if we always bought 300 shares, our returns by year end would have been $64,685.70. Using this, we can then deduce a rough “percentage return” as follows:

$64,685.70 / $86,400.00 = 74.87% return

Look at that, it says 74.87% annual returns! Before you get too excited though, keep in mind that it may take a more than $86,400 to comfortably follow our report with 300 shares for all trades. Meaning, we may require some “comfort level” to fall back on. So, put hypothetically, if it took more like $100,000, then our “percentage returns” would turn out like so:

$64,685.70 / $100,000.00 = 64.69% return

But as you see, it still falls at almost 65%! You’re getting there!

It can be rather difficult to pinpoint real results, but even if we increased the money used to purchase those 300 shares to $200,000, then you can see that you would still be getting over 30% returns for the year.

Looking at cumulative point gains for the year and then doing an “I would buy 100, 200, 300, 400, 500, etc. shares of each” to determine what your resulting dollar amount would/could be is an easier picture to look at. Doing that, all you need to do is let the “percent return” figure fall where it may based on how much money you started with.

Remember that not only do we have some benefits of hindsight in our report, but we are also not prone to execution delays or feel the anxiety of really having your money in the market and at risk (it can be said though, that we experience the ups and downs of membership based on how well we do in the report, which equals real money and real risk to our company - so it’s a rather similar predicament). Plus, it takes a lot of work to represent “real world” results based on how the stocks we follow in our portfolio trade during the day. In short, trust us to at least do that, because that’s what this service is for.

We have no issues about the fact that your results may be higher or lower (due to issues such as cost averaging, trade management and order execution) than what we have presented on our website or in the report. And with that said, giving you a performance recap still provides a very good “real world” view of how things are going with our morning report. If we do well, then you should do well. Say you only reproduce the results 80 or 90 percent as well as our model does, then it’s still a bargain!