How is the cost of a paper portfolio calculated?

The cost of a paper portfolio is calculated by multiplying the number of shares by the decision price. The decision price refers to the price at which the investor decides to buy the shares in the theoretical or paper portfolio. This calculation reflects the total cost incurred for acquiring the shares based on that decision price, which is crucial for assessing the overall investment and tracking its performance over time.

Understanding this calculation is important in portfolio management, as it allows an investor to evaluate the performance of their investments against this initial cost basis. By accurately calculating the cost, investors can also determine potential profit or loss if they decide to sell the shares in the future.

Other methods, such as using the selling price, do not account for the cost basis when creating or evaluating a paper portfolio, as they look at the market price upon selling rather than the initial investment cost.