Factors To Consider When Reviewing Your Stock Investment Returns

Evaluating returns on stocks might be tricky because of the volatility factor inherent in any investment

Let’s assume a small business owner takes a loan of N500,000 to start a business. He spends the entire money setting up a structure, getting his raw materials and then running the business for a year and makes a profit of N100,000 at the end of the year.

But it doesn’t just stop here as there must be a performance review to serve as a guide for future performance. This performance review for the business owner or organization typically involves sifting through the financials of that period to uncover truths that might be lost in plain sight – especially when you look at profit on its own.

For example, if you realize that he made a revenue of N1,000,000 and his direct costs were as low as N250,000, then you need to question his administrative costs. This is the performance evaluation process and it is a part of the investment process as a whole.

This is why in our Yochaa Analyst Notes (You would find this in the app when you click on Trade then analyst-led practice), we don’t just buy shares we think are worthy; we buy them, tell you the reason why, and keep you updated with their progress.

As an investor in stocks, as the value of your portfolio increases and decreases, you must be able to assess them not necessarily to make a run for it, but you simply evaluate performance. You just make to make sure you are looking at the right metrics.

While some of these factors have been considered at different points or the other, here is a rundown of some of the factors to consider when you make gains on losses on your investment in a simplified manner.

__Increased value:__ This is simply reviewing returns absolutely. How much did you start with and how much did you earn in return. It helps in also factoring costs and taxes that were expended to know your returns in real terms.

__Dividend Earned (Yield):__ Yield is a measure of the income that your investment pays at a specific period divided by the investment's price. In the Yochaa app, the dividend yield on stocks in the NSE can be found on the Explore page together with a 5-year performance history.

The reason for this is that it is possible for your stock to have decreased in value as a result of a decrease in share price. However, where dividends have been paid on such stocks, you have made returns on that stock and when reinvested, you would yield an even greater value from the investment.

__Industry performance:__ You would also want to review investments as compared to other stocks in the same industry. This is what is known as peer performance review. The essence is so that you can compare apples to apples. This is important so you don’t end up drawing the wrong conclusions and making the wrong decisions.

__Risk and Expectations:__ Are the projections still good? Has there been an event that can significantly affect the projections of the stock? Is the risk tolerance still within your threshold? This might also not have you pulling your funds out abruptly, but it can help you decide if you would be purchasing more of the shares or not.

__Inflation:__ Time value of money shows us that our Naira value today is different from the Naira value of tomorrow. With the constantly rising rate of inflation which is the case most of the time around here, the money worth of your 1 Naira would be less in future years.

Hence, where you have kept your investment for a long period of time, you would need to factor in inflation as it would play a major role in calculating what your returns are.

Evaluating returns on stocks might be tricky because of the volatility factor inherent in any investment. Which is why for the short term, it is important to simply review as a means of understanding and not necessarily towards making decisions.

Written by Lawretta Egba.