Unrealised gain

The difference between what an asset is currently marked at and its cost basis, where no sale has taken place.

Example

10,000 shares bought at 12.00 and marked at 31.00 show an unrealised gain of 190,000, of which 58,000 survived to become a real outcome.

Important

Decisions taken against it - position sizes, borrowing, commitments - rest on a number no buyer has agreed to, and marks are most optimistic exactly when they are hardest to realise.

Related terms

• Realised gain — The difference between what an asset actually sold for and its cost basis - a completed exchange that nothing afterwards can change.
• Valuation mark — The value an asset is currently carried at - a last traded price in public markets, or a valuation produced by a process in private ones.
• Mark to market — Valuing an asset at what it would sell for right now, rather than at what you originally paid for it.

Lessons that explain it

• For most alternatives, the entire return is one number: the exit price minus everything paid to get there — Without a dividend or a coupon, appreciation is the whole story for art, wine and watches - and it only becomes real at an actual sale. Farmland and royalty interests instead compound the way an income-producing asset does, cash paid out year after year. (11 min)
• A listing gives you shares you cannot sell yet, at a price that can fall before you can — After an IPO, early investors typically hold shares subject to a lock-up period. The price at listing can change substantially before they are free to sell. (10 min)
• A paper gain is a price someone paid once, not money you have — Private positions are usually marked at the last round price, adjusted for dilution. That mark is an estimate that can lag reality, and only a sale or distribution turns it into cash. (10 min)
• Deciding a position is worth nothing is a decision, and it should be made explicitly — Companies rarely announce their own failure clearly. Setting criteria for writing a position to zero keeps records honest and stops dead holdings from consuming attention. (10 min)
• Realised and unrealised: a mark is not money — An unrealised gain is somebody's opinion of what an asset would fetch. A realised one is what it did fetch. The distance between them is where a great many returns go to die. (10 min)
• A fund's value is mostly an opinion until something is sold — Venture funds report a net asset value built on the GP's own marks. Only distributions are cash, which is why DPI and TVPI tell very different stories. (11 min)

All 578 terms in the Investing glossary