Over short periods (e.g., a day, week, or month), seemingly small price movements (e.g., $1 on a $20 stock) can result in large ROI values when they are annualized or normalized to the length of the report period (see below). This is particularly evident in the ROI of individual securities in cases where a large portion of an investment holding is either sold shortly after the beginning of an ROI period or is added to a portfolio shortly before the end of an ROI period. The effective holding period for a security in these cases is short in comparison to the time period being evaluated, causing the "small" price movements to have a magnified effect on the annualized or normalized ROI.

 

Period Normalization - ROI "period normalization" refers to the fact that when an asset has not been held for the entire report period, and period normalization is specified, its period performance results are adjusted to the length of the period being used to report the ROI. This provides for a more meaningful comparison of ROI results with other securities held during that period.

 

An example of period normalization can be illustrated by considering the reporting of security ROI's for a three month period.  If normalization is invoked, results for all securities are computed based upon the three month period regardless of whether all securities were held for the entire period.  Accordingly, a security whose appreciation was 2% during the period, but which was also only held for two of the three months, will have a reported ROI of about 3%.

 

Although technically correct, large partial period ROIs can be misleading because they are based upon a short holding period.  Furthermore, such large partial period ROI figures can be rather alarming for professional users when reporting to clients.  Accordingly, Captools/net provides you with two methods of dealing more comfortably with partial period results.

 

Suppressing Period Normalization - This method involves simply suppressing period normalization by de-selecting the Normalize Period ROI's check box on the report customization specification for performance reports. When period normalization is de-selected, ROI results are for the defined report period or the period the asset was actually held, whichever is shorter.

 

Controlling Period Normalization - If you prefer to use period normalization, you can "control" the reported results by using the field "minimum" and "maximum" value "action" limits (see Performance Reports) available for numerical fields on Captools/net reports.

 

When a Captools/net report containing ROI fields is first created, the Default Minimum Action and Default Maximum Action settings are both set to Substitute and the Minimum ROI Days setting is set to "30 Days".  This causes the notation "<30 Days" to be reported, in lieu of an ROI number, whenever the underlying security has been held less than 30 days. You can modify these settings to suit your own requirements.

 

Sometimes a security held longer than the minimum specified period generates an ROI result outside the specified range.  This may be due to a missing price or due to a computational convergence failure.  In such cases, the notation "NMF" (no meaningful figure) is displayed.  You should examine the underlying data to learn the cause of the problem and take corrective action, either with the data or perhaps by loosening the minimum/maximum limits used in the subreport.