We adjust our historical price data to remove any gaps that were caused by price adjustments. Those adjustments are needed because of:
- Capital adjustments – stock splits, stock dividends, etc.
- Capital gain distributions
- DIvidend distributions
- Corrections to misquoted prices
Let’s walk through two types of adjustments and see how this works.
Let’s say that the current price of XYZ is 50. But, it went through a 2 for 1 stock split on 7/1/13. Well, what do you want the price to be on 6/28/13 assuming that the stock was flat? The “raw” price reported on 6/28/13 would have been 100 (assuming the stock was flat). So, the adjustment to all “raw” data before and including 6/28/13 will be to multiply the price by 0.5 and the volume by 2.0.
Let’s further complicate things, and say that instead of a 2:1 split, XYZ distributed a cash dividend on 7/1/13. The price probably dropped and might have triggered an action. That is probably OK because you can only make decisions on the knowledge available at the time. So, when you go far back in time, if you use raw data (if it is available from the data provider) then sooner or later you will encounter one of these capital distribution dates. This is why you are better off using the adjusted price, which QiT does, that reflects the true return.
Please be aware, the % profit will remain the same, so although, the entry and exit prices are different, the net result is the same. We could have used raw data for people who check the trade execution prices, but they, in turn, will have to understand this boundary issue will crop up and crop up more than you’d like.
Now let’s talk about Data Providers. Never does the statement, you get what you pay for, come into play more than with data providers. I was extremely careful, and spent a great deal of time, choosing a provider with whom I could have a relationship, would take my concerns seriously because their only business was providing data. If you want to check the data I have on the website you have to use a reputable provider and then investigate as to how they handle price adjustments and survivorship bias.
Please do not use Yahoo or Google data for anything related to real money. Search almost any investing chat rooms with questions about Yahoo quality, and you will see that when something is free, you get what you pay for. We suspect the same issues exist for Google.
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