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b and Terry,
Thanks for the info. I'm wondering why I've never
heard of this as an alternative to FastTrack's
exceptionally clean and thoroughly adjusted data.
Any comments from FastTrackers in this group? Has
anyone ever compared CSI to FastTrack stock data - or
mutual fund data for that matter?
Comments appreciated.
--- b <b519b@xxxxxxxxx> wrote:
> This is a long post. Those considering using CSI
> data can
> skip most of this post, but do read the next line.
>
> Be sure to check the check box for "proportionally"
> adjusted dividend data in the Preferences section
> for
> charting historical prices.
>
> The rest of the post explains why most users will
> want to
> use "proportionally" adjusted dividends. The post
> also
> attempts to explain why most can ignore CSI's
> warning that
> the "proportionally" adjsuted data will provide
> results
> that are "Not right P/L..."
>
> If you evaluation P/L in percentage terms, you want
> to use
> "proportionally" adjusted dividend data. However, if
> you
> are a special user who evaluates P/L in absolute
> dollars
> rather than percentage terms, then the CSI warning
> would
> apply to you.
>
> Confused?
>
> If so, I guess you will have to read the rest of
> this post.
>
> At the following menu in CSI's UA program:
> Preferences/Charting Preferences/Historical
> Adjustments/Stock Adjustments: the 3rd check box
> reads:
>
> "Adjust Dividend/Capital Gains proportionally
> "(Not right P/L, but no negatives)"
>
> By this CSI seems to mean the P/L or Profit and Loss
> will
> not be correct in absolute dollar terms.
>
> I do know that if one does not check this box, the
> profit
> and loss will be right in absolute dollars but WAY
> OFF THE
> MARK in PERCENTAGE terms.
>
> To see why you must use the "Proportionally" choice
> consider the following example. I will use a
> hypothetic
> stock to simply the discussion, but many dividend
> stocks
> produce an even more pronounced effect.
>
> Consider a stock XYZ which begans last month with a
> price
> of $10 and ends the month at $11 and received a once
> a year
> dividend of $1 during that same month.
>
> Without any dividend adjustment, the data would show
> a
> price gain of $1 and thus a profit of 10%. But in
> fact the
> gain was 20% for that month.
>
> So obviously one wants dividend adjustments to be
> made.
>
> However, if one just turns on dividend adjustment
> option,
> but does not turn on the "proportionally" option,
> here is
> what will happen. CSI will simply substract the
> dividend
> amount from prices prior to the dividend. So the
> price of
> the stock at the beginning of the month will now be
> adjusted down by $1 (the amount of the dividend) to
> $9. The
> result is the dollar gain from month beginning to
> end is
> correct = $2 gain ($1 price gain + $1 dividend).
> However
> the percentage calcuation of gain will be off: $2
> gain on a
> $9 starting point would look like a 22% gain.
>
> You might think begin off by 2% is tolerable. I
> agree. But
> that is just the effect of 1 year's dividend. What
> happens
> if the stock has paid $1 dividends each year for the
> last 9
> years? Well nine years ago, the subtraction method
> of
> dividends adjsutment (ie, the non-proportionally
> method)
> would adjust the starting price of the stock down by
> $9
> (nine years of $1 dividends). Assuming it had an
> actual
> price of $10 nine years ago, the adjusted price
> would be
> recorded as $1.
>
> I think you can see the problem coming.
>
> Well if you do not think in percentage terms, there
> will be
> no problem. In absolute dollars the gain will be
> correct
> between then and now. A gain of $10 (ie, $11 - $1
> adjusted
> price, or $1 of gain in the last month plus $9 worth
> of
> dividends over the years).
>
> But if you think in percentage terms, like I do, it
> would
> appear that a $1 stock had increased in value to $11
> over
> the past nine years. And that looks like a 1,100%
> gain.
> WOW. That would really mess up back testing.
>
> To avoid such a mess one must check the box for
> "proportionally" adjusting dividends. With a
> proportional
> method the price of XYZ nine years ago would be
> adjusted to
> $5. Why $5? So that the $6 gain from $5 to today's
> price of
> $11 would result in a percentage gain of 110%. So
> proportionally adjusted dividends will produce
> prices that
> will give reasonable results in percentage terms.
>
> So why does CSI/UA say "Not right P/L, but no
> negatives"
> for the "proportionally" adjusted option?
>
> My guess is it is a hang over from their original
> background as a futures/commodity data provider.
>
> Some traders of futures contracts might want to know
> the
> absolute, not pro-rated price gain or loss. In our
> example,
> some people doing back testing might want to have
> price
> gains and losses of nine years ago to be of the same
> magnitude as today's gain or loss -- without having
> to do
> percentage calcuations. My guess is that CSI's
> warning "Not
> right P/L, but no negatives" is meant for such
> users.
>
> But that warning does not apply to users like me,
> who want
> profit and loss in percentage terms. In fact, to not
> use
> "proportionally" adjusted prices would result in
> Percentage
> P/L that is not correct.
>
> b
>
>
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