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PortTrak 2.0 - A Bit of Theory, Value Per Share Anybody who has ever spent much time watching the Fool Portfolio knows that daily, weekly, monthly and yearly changes in the value of that portfolio are easy to track. After all, the portfolio began with $50,000, so if it adds another $500 today, then it's up another 1% since its inception. The Fools never add cash to the portfolio, so things don't get confused. With your portfolio it is probably not so. You might have started this year with $10,000, grown your portfolio a little bit, added $500 in March, taken out $1,000 in July to pay for repairs on a new car, added back a $750 bonus and now have the current value of your portfolio sitting at $11,354. So how have you done? How would you measure your return against the Indexes? PortTrak 2.0 uses a system of accounting for shares called Value Per Share (VPS) accounting. This is the same basic system that mutual funds use to account for their portfolios, which deal with constant inflows and outflows of money. It works like this: When you begin using PortTrak, you will be assigned an initial Value Per Share for your portfolio. We recommend starting with $25, but it really doesn't matter. If you begin your portfolio with $10,000 then, you will "own" 400 shares of your own portfolio valued at $25 per share, for a grand total of $10,000. Scenario 1: Your portfolio goes up 10% in value, and is now worth $11,000. Since you have 400 shares, each share is now worth $27.50 (10% above the $25 starting point). Scenario 2: You add $1,000 to your portfolio, which leaves your new grand total at $12,000, but you haven't increased your return at all. This new money goes to buy more "shares" at $27.50, adding 36.364 shares, for a total of 436.364 shares valued at $27.50. Since you measure portfolio performance based on the share price, you can see that adding this $1,000 cash did nothing to affect the share price, or the performance of your portfolio. Scenario 3: Your portfolio drops 5% in value. You will now own 436.364 shares worth $26.125 per share, for a grand total of $11,400. This is still up about 4.5% from where you started ($25 per share). Scenario 4: You remove $500 from your portfolio at $26.125 per share. This will take out 19.139 shares, leaving you with 417.225 shares, worth $26.125 each, for a grand total of $10,900. Note: You are still 4.5% up from your original investment of $25 per share, since adding and removing money does not affect performance. If this is at all confusing, just remember, it is a system designed to keep accurate track of your performance in a portfolio where cash may be moving in and out of it at irregular times and in irregular increments. Back to A Bit of Theory
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