# Have I made a profit or loss?



## Tyler Durden (30 July 2011)

I guess this is about the order of selling shares, but let's say I buy 100 shares in company x for $2, so total outlay is $200.

Six months later, the SP has gone down to $1. I think it is a good deal, so I buy 100 more at $1, for total outlay of $100.

The SP goes up to $1.50, and I think "wow, I have made $50 profit on those last 100 sharesI I bought at $1 each" so I sell 100 shares, receiving $150 in total.

This is where I'm a bit confused...if I have sold my first hundred which I bought at $2 each, then I have made a loss of $50. However, if I sold the most recent 100 I purchased at $1 each, then that means a profit of $50.

So...which one is it?


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## village idiot (30 July 2011)

Tyler Durden said:


> Six months later, the SP has gone down to $1. I think it is a good deal, so I buy 100 more at $1, for total outlay of $100.




the averaging down police will have you for that.....


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## tech/a (30 July 2011)

Your average is over 200 shares
So your averaged buy price is $1.50

Sells at that price has your position flat
Above $1.50 profit
Below $1.50 a loss.


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## Tyler Durden (30 July 2011)

tech/a said:


> Your average is over 200 shares
> So your averaged buy price is $1.50
> 
> Sells at that price has your position flat
> ...




So it's averaged out? It's not like a LIFO, FIFO thing in accounting?


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## tech/a (30 July 2011)

I suppose you could treat it that way and when I sell a part position with IB that's how they do it,but the truth of the matter is you have an average buy and an average sell price.
If your average sell is higher than your average buy then you have a profit.


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## MACCA350 (30 July 2011)

Tyler Durden said:


> So it's averaged out? It's not like a LIFO, FIFO thing in accounting?



That depends on whether you're asking for you're own information or for tax purposes.

Cheers


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## Tyler Durden (30 July 2011)

MACCA350 said:


> That depends on whether you're asking for you're own information or for tax purposes.
> 
> Cheers




Ok...and I take it from that, that the two would be different then?

I'm just trying to figure out when to sell, without ignorantly ripping myself off.


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## Julia (30 July 2011)

Tyler Durden said:


> So it's averaged out? It's not like a LIFO, FIFO thing in accounting?



Not necessarily.

1.  You should be keeping clear and accurate records so that you can easily nominate which parcel of shares you are selling.

2.  You can *choose which parcel to sell.*

3.  Obviously for tax purposes you will choose to nominate the shares you are selling as those which do not give you a profit.

4.  Taking your example, you would show a $50 loss and carry that loss forward.  If you later decide to sell some shares at a profit that $50 loss can be used to offset the profit.


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## MACCA350 (30 July 2011)

Tyler Durden said:


> Ok...and I take it from that, that the two would be different then?



You can look at profit/loss however you like but for tax reporting you have to deal with it correctly.



> I'm just trying to figure out when to sell, without ignorantly ripping myself off.



Well that's completely up to you when you sell but based on you're example you haven't made a profit overall yet, you're even(in fact you're still in the red due to brokerage fees).

Cheers


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## So_Cynical (30 July 2011)

Tyler Durden said:


> So...which one is it?




Each and every share cost you a certain amount of money and when sold returned you a certain amount of money...good portfolio software allows you to see your shares in parcels brought at the same time and for the same price.

This makes it easy to keep track of what you sold and for how much etc, and provides statistics so you can make better decisions and see trends in your trading and or investing performance....like the stats in my sig.


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## LifeChoices (30 July 2011)

Tyler Durden said:


> I guess this is about the order of selling shares, but let's say I buy 100 shares in company x for $2, so total outlay is $200.
> 
> Six months later, the SP has gone down to $1. I think it is a good deal, so I buy 100 more at $1, for total outlay of $100.
> 
> ...




Before you decide to sell you have a total of 200 shares that you paid a total of $300 for
that makes each share worth $1.50

There's another 10 minutes I'll never get back.


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## noirua (30 July 2011)

It may be better to just ignore the tax situation in buying and selling shares as it will hamper your decisions; otherwise move to New Zealand and you can make millions and not pay tax on your profits.


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## tinhat (31 July 2011)

For tax purposes...

This has never applied to me in practice, so please correct me if I am wrong...

If you wish to claim franking credits on dividends received then the ATO requires that you need to have owned the shares for a minimum 45 days. I think the wording they use is that the asset needs to be "at risk" for a minimum 45 days. It does not matter how long you owned the shares before you received the dividend, just that you must have owned them for at least 45 day. For example, you may have owned the shares for thirty days before receiving a dividend with franking credits. You will need to make sure you hold the shares for another fifteen days in order to claim that franking credit in your tax return.

The ATO uses LIFO (last in first out) accounting when determining this rule.

http://www.ato.gov.au/businesses/content.aspx?doc=/content/18898.htm


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## builder2818 (1 August 2011)

Add the cost of the original shares you bought, with the cost of the new lot you bought when the price dropped. Include your brokerage in that also.

Then with the total of those two orders (doesn't matter how many times you bought), divide that figure by the total amount of shares you currently hold. The answer is your break even price per share (this last figure doesn't include brokerage).


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## wayneL (1 August 2011)

noirua said:


> It may be better to just ignore the tax situation in buying and selling shares as it will hamper your decisions; otherwise move to New Zealand and you can make millions and not pay tax on your profits.




That depends if you are a trader or investor.

Traders will pay income tax.


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## Julia (1 August 2011)

I have assumed the original question was asked with regard to the tax aspect.



> Identification of shares
> 
> When different parcels of shares (etc.) have been acquired at different times or for different prices, it's necessary to identify which ones are disposed of in a sale, since the capital gain or loss may be different for each.
> 
> ...


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## skc (1 August 2011)

tinhat said:


> For tax purposes...
> 
> This has never applied to me in practice, so please correct me if I am wrong...
> 
> ...




45 day rule applies only if you have more than $5k in franking credits to claim ( I think).


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