Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: Bernie Goldberg who wrote (12059)	7/15/2000 4:35:53 PM
From: aptus	Read Replies (1) \| Respond to of 18928

Hello Bernie, I'd like a bit of clarification on your view of how splits are misrepresented when running historical analysis in Automatic Investor and PCA. From my viewpoint, the purpose of running a historical analysis is to see what the value of your account would be if you had started it at a certain point in the past and ran it to another point (after the initial point). Since splits don't (theoretically) affect the value of your holdings, they don't misrepresent the historical analysis results. Certainly the number of shares, at any point prior to a split, would be different with historical analysis compared to actually going through and manually entering the pre-split data, but in the end the number of shares come out to be the same. For example, if we had 10 shares of stock A with a pre-split price of $50 on Jan 1st, then the value would be $500. Then on Feb 1st the stock split 2:1, we would now have 20 shares @ $25 for a value of $500. If we decided to run a historical analysis today, we would have purchased (according to the split adjusted data) 20 shares @ $25 (for a value of $500) on Jan 1st. Clearly, that doesn't match up with the 10 shares @ $50 we actually had. However the value remains the same, and that's really what AIM cares about. It doesn't matter whether that value is comprised of 100 shares, or 50 shares, or 10 shares. As long as the value is consistent. Carrying on with our example, when Feb 1st rolled around, we would actually now hold 20 shares @ $25 (from the 2:1 split) and from that point on, the number of shares would match the historical analysis. At the end of the analysis, our returns would be the same whether we used the price adjusted data or actually lived through the actual split. Since that's the information most people are after (rather than how many shares did I have of stock A pre-split), things work out nicely. However are you saying that you think there is a good reason for a historical analysis to take into account pre-split prices and then explicitly include the splits? I'd appreciate clarification, because if I've missed something, I'd certainly like to rectify it in the software. I'm also interested in your comment, "Newport has a much slower process of doing a historical simulation but it allows one to see what happens in a stock split." What is the historical simulation process that you are referring to in Newport (is it manually adding entries and manually updating prices?) Also what information does it allow you to see when a stock split occurs? Thanks, mark. P.S. The weather in the Pacific Northwest has been great this past week. I hope it holds for your trip.