We are evaluating the ActivePartnership™ software for use
with our investment club and have a few questions. It
appears that we will not able to use/depend on the software
to calculate our gains. For instance, when viewing the
Investment Performance Report for this year, 22 of our
transactions have an Annualized Internal Rate of Return
listed as 15948.4%, with the remaining 9 transactions
receiving ERR (indicating error). Is it because the IRR is
limited to a set number of spaces - for example, it cannot
be more than 99999.9%? We also get the same ERR when viewing
the Member Performance Report - and any time an annualized
return is calculated.

Unlike most clubs, we execute numerous short term
transactions and, as a result, we may have a very high
annualized rate of return. Is there something we are missing
in the configuration or something?

www.bivio.com/pachiracapital

Hi Michael.

I notice this question has gone unanswered for a while.
Sorry for not getting to it sooner.

Michael Prouse wrote:
> Unlike most clubs, we execute numerous short term
> transactions and, as a result, we may have a very high
> annualized rate of return. Is there something we are missing
> in the configuration or something?

There's nothing you're missing in the configuration.

All of our reports have help documents which explain them.
For example the details for the Investment Performance
Report is here:

http://www.bivio.com/hp/investment-performance-report.html

The section of that document regarding the AIRR includes
this note:

AIRR's for short periods of time can become extremely
distorted and misleading. For example: Let's look at a $1000
investment that earns a 1% total return or $10 on the first
day. On an annualized basis $10 earned on $1000 invested for
one day equals an AIRR of over 3600%. That's because the
AIRR calculation is an annualized calculation. In other
words, if your put $1000 into a bank account, in order for
that $1000 to earn $10 in one day that bank account would
have to pay interest at a rate of 3679%.

To avoid confusion, a value of N/A is displayed when the
period is shorter than the configured A.I.R.R. Wait Period.
An officer may change the default A.I.R.R. Wait Period as
described in the Club Configuration help topic.

In the unlikely event that bivio does not find all of the
data necessary to calculate an accurate AIRR, bivio will
place an ERR in the AIRR column for the applicable security.


You may already have seen that document, so I'll add the
following. This isn't just a limitation of bivio. You'll
almost certainly run into the same problem if you try to
calculate an AIRR using Microsoft Excel. An annualized
calculation isn't meaningful for short-term investments
because the time periods are completely out of scale. For
example, you wouldn't measure the width of a pen in yards...
it's just not meaningful to know that a ballpoint pen is
1/144th of a yard in width. Similarly, the effective annual
interest rate for an investment that was held 1/365th of a
year (or even 7/365ths of a year) just isn't a helpful
number anyway.

Eric Dobbs
bivio Inc.