Hello,

Does any know if Bivio provides investment performance as a
year-to-date calculation?

Annualized IRR is ok, but it will only give you an accurate
YTD if you run it at the end of the year.

I guess I could calculate it manually using the change in
the unit NAV as follows: (current NAV - beginning of year
NAV)/beginning of year NAV.

Any thoughts? thanks.

> Does any know if Bivio provides
> investment performance as a
> year-to-date calculation?

You can calculate it from the annualized IRR.

Today (7/3/2007) is 184 days trough the year, so YTD is
184/365 = 0.504 of a year. If your annualized IRR was 10%
as of 7/3/2007, then your YTD total return would be
1.10^0.504 - 1 = 4.9%. ("^" indicates exponentiation.)

I don't understand why you'd care about YTD return, but the
above is how to calculate it.

-Jim Thomas

Thanks Rip. Appreciate your comments. Two follow-ups and a
final thought.

(1) Regarding the annualized IRR, it would provide an
accurate YTD if you calculated at the end of the year
(December 31st) for the whole 1 year period (Jan 1st to Dec
31st)?

(2) Regarding change in unit NAV approach, I agree with you
that it would not be accurate at the member level, but I
believe it should be on the club level. Do you agree?

Then, my final thought is I am trying to find out why people
care about the annualized IRR? It assumes that the returns
you earned over a short period (say 3 or 6 months) will
continue over the remainder of the year...which is highly
unrealistic to say. Futhermore, we have no ability to
predict the market or our portfolio's returns. I would put
more weight in the YTD calculation. If you were talking
with your friend about your club's performance, wouldn't it
be better to say, "We have earned x percent so far this
year, compared to y for the S&P 500" or whatever benchmark
you want to use.

Annualized IRR's are more appropriate in the world of fixed
income, where you would get a coupon and want to calculate
what the annualized yield might be based on that and your
purchase price. In this case, the future is predictable,
unless the company defaults. You are going to receive your
principal back and the coupons until maturity.

Any comments would be appreciated.

Rip West wrote:
> << Does any know if Bivio provides
> investment performance as a year-to-date calculation?>>
>  
> I don't believe so.
>  
> << Annualized IRR is ok, but it will only give you
> an accurate YTD if you run it at the end of the year.>>
>  
> I don't understand how you use an 'accurate YTD return'.
> Surely it is going to make a difference if it is for 3 months vs 9 months.
> Annualized IRR helps to understand the time factor.
>  
> <<
>  I guess I could calculate it manually using the change
> in the unit NAV as follows:  (current NAV - beginning of
> year NAV)/beginning of year NAV.
> >>
>  
> NAV is not a valid indicator of performance. Here is a blurb
> by Jerry Dressel on the subject:
>  
> >> It is easy to
> prove that unit value by itself is not accurate.   Take
> a example
> of a club member who invests a $100 in a club on 1/1/00 at a
> unit value of
> $10. Then on 2/1/00 that same member invests another $100
> at a unit value of
> $20. Therefore, this member bought 10 + 5 = 15 units
> for a total of
> $200.   Then on 3/1/00 the unit value is $12.  
> Since
> 1/1/00, when the club began, the unit value has increased from $10
> to
> $12.  During that same period this member invested $200. 
> Unfortunately,
> even though the unit value has gone up 20% in the first 2
> months, this
> member lost $20. <<
>
> Rip West
> Saint
> Paul, MN
>
>  

> (2) Regarding change in unit NAV approach, I agree with you
> that it would not be accurate at the member level, but I
> believe it should be on the club level. Do you agree?

No. The same problem as pointed out in Jerry Dressel's memo would exist for
the club as a hole. Changes in NAV simply are not valid indicators of
performance.

> Then, my final thought is I am trying to find out why people
> care about the annualized IRR? It assumes that the returns
> you earned over a short period (say 3 or 6 months) will
> continue over the remainder of the year...which is highly
> unrealistic to say. Futhermore, we have no ability to
> predict the market or our portfolio's returns. I would put
> more weight in the YTD calculation.
>

Well, it could be argued that neither the ytd or annualized IRR are accurate
indicators of what the club will continue to do. I wouldn't put any 'weight
in the YTD calculation' if you are trying to predict what the club is going
to do for the rest of the year. Using the IRR, it is at least valid to say
that the club is earning 6% on an annualized return basis as compared with a
savings account at 4.25%.

> If you were talking
> with your friend about your club's performance, wouldn't it
> be better to say, "We have earned x percent so far this
> year, compared to y for the S&P 500" or whatever benchmark
> you want to use.

It is never appropriate to compare the club's performance to the S&P 500
change since the beginning of the year, unless your club has had no influx
or outgo of cash during the year. The only true way of benchmarking is to
construct a case where you invest in the s&P 500 at the same times and in
the same amounts as cash is added to your club.


Rip West
Saint Paul, MN

> Then, my final thought is I am trying
> to find out why people care about the
> annualized IRR?

I don't understand the interest in YTD return either. But,
whether it's measured by annualized IRR or YTD appreciation
makes no difference. Those are just two different points of
view about the same thing (and both are "accurate").
They're much like measuring your progress on a trip. After
driving for 3 hours in a morning you can say you averaged 50
miles per hour (annualized IRR) or you can say you traveled
150 miles (YTD appreciation). Both provide the same amount
of information and you can convert from one to the other.
Neither tells you a thing about how far you'll have
travelled (or what your average speed will have been) by the
end of the day. You might turn around and go home after
lunch, achieving a net distance and speed of zero!

> It assumes that the returns you earned
> over a short period (say 3 or 6 months)
> will continue over the remainder of the
> year...which is highly unrealistic to say.

YTD Annualized IRR tells you, if things were to keep going
as they have so far this year, what would your overall
return be at the end of the year. If you think things
*won't* keep going the same for the rest of the year, then
you should have no interest in YTD Annualized IRR.

I don't see any percent YTD appreciation would be of any
more interest. (Did you see my previous post about how
percent YTD appreciation is derived from YTD Annualized IRR?
If you don't care about A, and B is calculated from A, why
would you be interested in B?) So what if you're up 10%
over the first three months if you'll be down (or up!) 15%
over the next nine months? Percent YTD appreciation tells
you nothing more about the future than YTD Annualized IRR
(and no more about the past).


> If you were talking with your friend
> about your club's performance ...

Why are you talking to your friend about your club's
performance at all? Are you just trying to impress them?
<g> Annualized IRR (assuming it's positive!) will sound
more impressive than percent YTD appreciation. Percent YTD
appreciation is no more accurate or informative.

Are you trying to inform them about your style of investing?
The club's long-term investment performance? How
educational it would be for them to join your club? What
sort of future financial gain they might expect from joining
your club? Neither YTD Annualized IRR nor YTD appreciation
will tell them anything useful about any of that.

-Jim Thomas