A very simple question regarding shares and how share prices change.

BrockStoker

I'm just trying to explain the basics to someone, and would like to know what others think about the following:

Let's say you buy ten shares at ten pounds each at the start of the day, or £100 worth in total. During the course of the day the share price fluctuates quite wildly (lets say, buy as much as 20% for sake of argument). By the end of the day, the share price has returned to £10 per share. You have neither made a profit or a loss right? The intra-day movements of the share price do not make any difference - all that matters effectively is how many shares, and the price at the end of the day(or at the point of selling), right?

Prism

Yes, you can pretty much ignore the value of the shares until you finally sell. However even though the value varies throughout every day, sometimes wildly, it can be useful to keep track of the total to ensure you are still on track with your investment goals. Probably checking once a day/month or year based on how important it is to you.

ColdIron

You're ignoring trading costs and stamp duty?

redpete

You only make a profit or loss when you sell those shares you have bought.  The price at the end of the day is no more relevant than the price at 11:34 in the morning.  The share price published anywhere when you want to sell (or buy) them does not mean you will get that price, the deal is only made when a seller and buyer are willing to transact at the price they agree (allowing for any broker's commission they will pay).

lozzy1965

Well yes, but you have neither made a profit nor a loss until you sell, whenever you sell. 
There is such a thing as a 'paper' loss or profit too - where you haven't yet sold.
I am also assuming you are ignoring things like the costs of buying and selling and the bid/offer spread in your example.
Who are you trying to explain this to and why?  
I ask because your example is possibly too simplified.

BrockStoker

ColdIron said:

You're ignoring trading costs and stamp duty?

Yes, just for this example. I don't want to over complicate.

eskbanker

BrockStoker said:

During the course of the day the share price fluctuates quite wildly (lets say, buy as much as 20% for sake of argument).

If you buy as much as 20% of a company's shares then chances are you'll have caused the fluctuations....

k6chris

The value of your shares goes up and down all the time, however the only time that valuation matters, is when you want to sell them (or buy more).  Houses are a good analogy.   Good question.

Malthusian

The price at the end of the day doesn't matter to anyone, because the market has closed. If you place an order while it's closed, the price you get will depend on what it moves to when the market opens.

If you are trying to explain the difference between paper losses and real losses to someone, I think you are making it unnecessarily complicated by bringing intra-day movements into it.

ColdIron

BrockStoker said:

ColdIron said:

You're ignoring trading costs and stamp duty?

Yes, just for this example. I don't want to over complicate.

OK. How about the bid ask spread?

To buy at £10 the sell price will be lower, let's say £9.90

To then sell at £10 the buy price will be higher, say £10.10

So the share price will have to rise to achieve parity. I wonder how many real world factors you can remove before it becomes meaningless

But at its simplest, if your buy contract note says 10 * £10 your cash account will be £100 lighter. If your sell contract note says 10 * £10 your cash account will be back to where it started

Chris_English

BrockStoker said:

I'm just trying to explain the basics to someone, and would like to know what others think about the following:

Let's say you buy ten shares at ten pounds each at the start of the day, or £100 worth in total. During the course of the day the share price fluctuates quite wildly (lets say, buy as much as 20% for sake of argument). By the end of the day, the share price has returned to £10 per share. You have neither made a profit or a loss right? The intra-day movements of the share price do not make any difference - all that matters effectively is how many shares, and the price at the end of the day(or at the point of selling), right?

Yes, correct.

You can choose, if you want, to value your shares more frequently than once a day, and in that case you coudl say that you have gained and lost through the day as the price moves, but either way, you are back to zero P&L at the end of the day.