Stock Investing 101 - How do you calculate percentage gain or loss on an investment?

Okay every now and then I am going to break down some basics that I think will help out the novice investor. If you are savoy don't be snobby and skip this post. For those of you that are learning, I feel that knowing your gains is like looking at your kill. For better or for worst you have to get to this task every transaction you make. You should never hop offline or get off the phone with your broker without assessing what your kill looks like.

This is a good article that will help you out:

Calculating the percentage change of your investment is quite easy. All it takes is a little bookkeeping and either a simple calculator or a pad of paper for doing the long division. Here is what you need to do:

Take amount that you have gained on the investment and divide it by the amount invested. To calculate the gain, take the price for which you sold the investment and subtract it from the price that you initially paid for it. Now that you have your gain, divide the gain by the original amount of the investment. Finally, multiply your answer by 100 to get the percentage change in your investment.

If the percentage is negative, resulting from the market value being lower than the book value, you have lost on your investment. If the percentage is positive, resulting from market value being greater than book value, you have gained on your investment.

Here is what the formula looks like:

(Price Sold - Purchase Price)/(Purchase Price)

If you haven't sold the investment, you can use the current market price in the place of the price sold.

This basic formula is used every day to find out exactly how many percentage points indexes, stocks, interest rates, and so on have changed over a given period of time. For example, if the Dow Jones Industrial Average opens at 9,000 and closes at 9,300 today, the formula would show that the percentage change over the day was 3.33% [(9,300 – 9,000) / (9,000)].

However, investing does not come without costs and this should be reflected in the calculation of your percent gain or loss. The above is an illustration of the calculation without costs, such as commissions and taxing. To incorporate costs, reduce the gain (market price - price purchased) by the costs of investing. By incorporating these costs you will get a more accurate representation of your gain or loss. Also, if your investment paid out any income, such as a dividend, you will need to add this amount to the gain amount.

Here is a more detailed way to calculate gain or loss:

[(Amount Sold - Amount Paid) + Income Gain - Costs]/Amount Paid