The V1 and V2 values can be determined by examining your Trade Confirmation sheets.
You buy a stock at $38.20 per share and in 8 months the price goes to $45.00 per share. You sell the stock at that point in time. What are your gains? To make things simple, ignore any commissions or fees for this example.
You had an almost an 18% gain in the stock's market price
You buy 250 shares of Amalgamated Widgets stock at $38.20 per share and pay a commission and fees of $65.00. In 8 months the price goes to $45.00 per share. You sell the stock at that point in time and pay commission and fees of $70.00. What are your gains (if any)?
This time we are going to include the transaction commissions and fees in the example. You paid $9,615.00 dollars to buy the shares (V1). When you sold the shares you received $11180.00 in your account (V2). Here's how the calculations work.
Commissions and fees have cost you 1.52% (17.8-16.28) of the gains (not an unreasonable commission for full service brokers) and you have a very nice gain of over 16% in just 8 months.
What if your stock doesn't go up? Suppose you buy 250 shares of stock in Amalgamated Widgets at $40.00 per share, paid a $185.00 commission and expenses, and the share price dropped to $32.45 per share; but you haven't sold yet. What is your percentage loss?
You have a loss of a little more than 20%. If you were to sell the stock and pay commissions and fees, the loss will be a little greater.
If you're interested in how to prove the formula, here's the answer. Suppose you have $100.00 (let's call this amount V1) and it grows by 20%. You would have $120.00 at the end of the example (let's call this amount V2). In other words, V1 x 1.20 = V2. You can see from the proof below, how to calculate the percent gain if you know the initial values V1 and V2.
© 2013 Brian S. Wilson