Still to this day, we see far too many investors mistakenly use their book value instead of their initial invested capital when calculating their investment portfolio performance.
It is important to understand that 'book value', as shown on your investment statement, is only used for calculating potential capital gains or losses for tax purposes. The difference between market value and book value reflects potential capital gains or losses that are unrealized.
However, it is crucial to note that 'book value' has no relation to the initial amount of money you invested. It is merely a tax calculation and therefore should never be used when calculating investment performance.
In this video, we share an example to help investors understand the important difference between book value and initial invested capital.