Proceeds [CapiPedia]

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====== Proceeds ======
Proceeds are the funds received from a sale or other financial transaction. Think of it as the money that flows into your account after you sell an asset, like a [[stock]], [[bond]], or a piece of [[real estate]]. While the concept sounds simple, it's crucial to distinguish between //gross proceeds// and //net proceeds//. Gross proceeds represent the total sale price—the headline number. For example, selling 100 shares at $50 each gives you gross proceeds of $5,000. However, this isn't the amount you actually get to keep. Net proceeds are the more important figure for any investor, as this is the gross amount minus all the associated costs of the sale, such as fees and commissions. Understanding this difference is fundamental to accurately tracking your investment performance and making smart financial decisions. For a value investor, minimizing the gap between gross and net proceeds is a key part of maximizing returns.
===== Gross vs. Net Proceeds: What's the Difference? =====
Getting a handle on these two figures is your first step to understanding the real profitability of any investment you sell. One is the sticker price; the other is the cash in your pocket.
==== Gross Proceeds: The Big Number ====
Gross proceeds are the total amount of money received from the sale of an asset, **before** any deductions. It's the simplest calculation:
  * **Sale Price per Unit x Number of Units Sold = Gross Proceeds**
If you sell 200 shares of a company for $40 per share, your gross proceeds are $8,000 (200 x $40). It’s the top-line figure you’ll see on your trade confirmation, but it’s an incomplete picture of your financial outcome. It’s exciting to see, but it’s not the end of the story.
==== Net Proceeds: What You Actually Pocket ====
Net proceeds are what you are left with after all the selling expenses have been paid. This is the number that truly matters because it represents the actual cash you have available to reinvest or spend.
  * **Gross Proceeds - Transaction Costs = Net Proceeds**
Transaction costs can include a variety of things, which you should always be aware of:
  * [[Brokerage commissions]] or trading fees
  * Government taxes and regulatory fees (like SEC fees in the U.S.)
  * Transfer taxes (common in real estate)
  * Legal or advisory fees
Continuing the example above, if your gross proceeds were $8,000, but you had to pay a $10 brokerage fee and $2 in regulatory fees, your net proceeds would be $7,988 ($8,000 - $12). This is the amount you use to calculate your [[capital gain]] and your true [[return on investment (ROI)]].
===== Why Proceeds Matter to a Value Investor =====
For a [[value investing]] practitioner, scrutinizing the details is everything. Proceeds are no exception, as managing the costs that shrink them is a direct path to better returns.
==== Calculating Your True Return ====
A core tenet of value investing is to have a "margin of safety," not just in the price you pay but in all your calculations. By focusing on net proceeds, you are being realistic and conservative about your actual profit. High transaction costs can significantly eat into your gains, turning a seemingly great investment into a mediocre one. A savvy investor, much like a good business owner, is always looking to cut unnecessary expenses. Minimizing fees means your net proceeds will be closer to your gross proceeds, maximizing your real return.
==== Reinvestment Decisions ====
Great investors like [[Warren Buffett]] became legendary by compounding their capital over long periods. The engine of compounding is reinvestment. Your net proceeds from a sale are the capital you have available to redeploy into the next undervalued opportunity. Knowing this figure precisely allows you to plan your next move effectively. If you overestimate your available funds by looking only at gross proceeds, you might fall short when it comes time to make your next purchase. Accurate accounting of net proceeds is the bedrock of disciplined capital allocation.
===== A Practical Example: Selling a Stock =====
Let's walk through a simple, real-world scenario.
Imagine you bought 100 shares of "ValueCo" at $50 per share a few years ago. Your initial investment, or [[cost basis]], was $5,000 (100 x $50), plus a $10 commission, for a total of $5,010.
Now, you decide to sell all 100 shares at $80 per share.
  - **Step 1: Calculate Gross Proceeds**
    100 shares x $80/share = **$8,000**
  - **Step 2: Identify and Subtract Transaction Costs**
    Your broker charges a $10 commission for the sale. There might also be a tiny regulatory fee of, say, $0.20.
    Total Costs = $10 + $0.20 = $10.20
  - **Step 3: Calculate Net Proceeds**
    $8,000 (Gross Proceeds) - $10.20 (Transaction Costs) = **$7,989.80**
This $7,989.80 is the cash that will land in your account. It's the amount you have available to reinvest and the figure you will use to calculate your taxable gain. In this case, your capital gain would be your net proceeds ($7,989.80) minus your original cost basis ($5,010), which is a handsome profit of $2,979.80, on which you would then pay [[capital gains tax]].