How Initial Portfolio Holdings Affect Strategy Return Calculations
Summary
This discussion examines how starting portfolio composition can distort a simple account-value profit calculation for a cryptocurrency strategy. It compares two accounts following the same price move: one begins with a bitcoin and no cash, while the other begins with cash and buys bitcoin before selling after its price rises. Under the stated formula, the first account records no gain because the initial bitcoin is revalued at the ending price; the second records the price increase as profit.
The examples show that reported results can depend on whether an account starts invested or in cash, even when the trading decision is similar. The post raises this as a comparability problem and invites discussion, but does not propose a normalized return measure or settle how to treat a passive holding benchmark. It focuses on a single asset and a simplified sequence of transactions, so it does not address fees, deposits, withdrawals, or broader portfolio performance measurement.
Key ideas
- A profit calculation based on ending-price portfolio values can make results depend on initial holdings.
- A starting bitcoin position and a starting cash position produce different reported gains in the examples.
- Comparisons between strategies require clarity about initial capital and portfolio composition.
- The discussion identifies the measurement problem but does not recommend a normalized return method.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.