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One critical technique every investor must be aware of is how to calculate percentage change, otherwise known as percent gain or loss. According to William Schantz, this simple calculation reveals how much an investment has increased or decreased in value over a set period of time, and it is essential for tracking the performance of your portfolio.
Percentage Exchange – Explained by William Schantz
Percentage change is a simple mathematical concept representing the relative difference between two values. It is calculated by dividing the difference between two numbers by the original number. The result is then multiplied by 100 to arrive at a percentage.
For example, let’s say an investor buys a stock for $50, and its value increases to $60. The absolute change would be $10, and the percent change would be 20% (($60-$50)/$50)*100).
Conversely, if the stock lost value and was worth $40 at the end of the period, then the absolute change would again be $10, but the percent change would now be -25% (($40-$50)/$50)*100).
Percentage change can be applied to any two values, whether they are a stock’s price, your investment portfolio’s value, or even gas prices.
Why is Percentage Change Important?
Bill Schantz explains that percentage change is an essential tool for investors because it allows you to track the performance of your investments over time. When you know how much an investment has increased or decreased in value, you can make more informed decisions about when to buy and sell.
In addition, percentage change provides valuable information about the market’s overall direction. If most investments are experiencing gains, the market will likely trend upward. But if losses are widespread, then the market may be headed downward.
How to Calculate Percentage Change
There are two ways to calculate percentage change: manually or with a calculator.
To do it by hand, identify the investment’s starting and ending values. Subtract the starting value from the ending value to find the absolute change. Then, divide the absolute change by the starting value. Finally, multiply the result by 100 to find the percent change.
Here’s an example:
An investor buys a stock for $50, and its value increases to $60.
The absolute change would be $10, and the percent change would be 20% (($60-$50)/$50)*100).
If the stock lost value and was worth $40 at the end of the period, then the absolute change would again be $10, but the percent change would now be -25% (($40-$50)/$50)*100).
To calculate percentage change with a calculator, simply enter the starting value, press the minus button, enter the ending value, and then press equals. The result will be displayed as a percentage.
It’s important to note that you must use the same units for both values in order to get an accurate result. For instance, if the starting value is in dollars, the ending value must also be in dollars. You cannot mix and match units like dollars and cents.
Bottom Line
According to William Schantz, the percentage change is a simple but powerful tool that can be used in various ways by investors. Understanding how to calculate percent change and when to use it can make more informed decisions about your investments.
