What is our growth?

Etana Finkler on

I must be missing something but I cannot find a report that
shows how our stocks are doing. For example, the MicNOVA
Model Investment Club of Northern Virginia:

We bought SYK on 3/2009 for $1,004 and current value after
25 months is $1,945. I believe we are up in price 92% if my
math is correct.

In bivio I see an Annualized Internal Rate of Return of 35%.
I never really have understood that number/percent. Where
would I see the percentage gain of Stryker since we bought
it? Why is that not an easily available number?

I would also like to see how the club portfolio is up or
down each month for the meeting. I think this is it; please
correct me if I am wrong:

09/11/2008 beginning to current 5/18/2011
Model Investment Club of Northern Virginia 9.0%
20,462.15
Vanguard 500 Index Fund (VFINX) 18.7%
23,191.96

12/31/2009 to current 5/18/2011
Model Investment Club of Northern Virginia 2.7%
20,462.15
Vanguard 500 Index Fund (VFINX) 16.7%
23,425.28
______________________________
I just saw this old post from Jim Thomas:
$ gain (or loss) is shown on the Valuation Statement. % gain
is not shown
anywhere

why is the % gain or loss not shown anywhere? I noticed the
same thing in the Repair Shop in BI: that a lot of clubs
that are reviewed and are old or young, don't really seem to
have profited much in terms of return, when I examine the
numbers.

If BI suggests a goal of 14.9% to double our money every 5
years, and even if we aim for 10%, why isn't that % easily
seen on reports?

Lately I've been feeling that that BI investors don't really
know if they are doing well or not. I have mentioned many
times that I haven't met even equal to the market, and now I
see that this DC area model club also is way below the
market average. It would seem that we should see each month
easily "are we beating the market or not."

thanks, Etana

Rip West on

Hi Etana,

You really should be congratulate for asking a lot of questions that promote discussion and more understanding of investment concepts. You say ........

In bivio I see an Annualized Internal Rate of Return of 35%.
I never really have understood that number/percent. Where
would I see the percentage gain of Stryker since we bought
it? Why is that not an easily available number?
>>

It's not an 'easily available number', because it is a very misleading number. On the other hand, the Annualized Internal Rate of Return' , AIRR, is a number that is much more appropriate for measuring the performance of a security over a span of time.

We bought SYK on 3/2009 for $1,004 and current value after
25 months is $1,945. I believe we are up in price 92% if my
math is correct.
>>

I get 94%, but let's not quibble<g>. What's it mean that my security has appreciated in price by 94%. NOTHING, if you don't consider how long it took to do that, and what other cash flows were generated over the period. Consider this. Assume you bought StockX on 1/1/1970 for $1,000, and at May 17, 2011 it was worth $3,000. That stock has gone up 300%. So, it's a lot better than SYK that only went up 92%, right? WRONG! It took over 40 years to get there. So, its AIRR is 3%, compared to SYK's AIRR of 35%. But that's not the whole story. Suppose that StockX paid a dividend of $50 every month. Then, its AIRR would jump to 80%.

The point is that AIRR considers both the length of time for the investment, and the intervening cash flows, while your simple comparison of stock prices does not. You say that you don't understand the concept of AIRR. While the calculation is complex, the concept is really not too complicated. I think we all understand annualized interest rates on CDs. Right now you can get 1.25% annualized on a CD of $1,000. Compare that to the 35% that you received on SYK. You could have invested your $1,004 in a CD and received a return of 1.25% annually, but, instead, you invested in SYK, and received 35%. You took on more risk, and got a much better return.

You say......

It would seem that we should see each month easily "are we beating the market or not."
>>

But that's exactly what bivio's Performance Benchmark does. It compares your investment club's performance with what would have happened if you had invested your available funds in the S&P 500.

So, I encourage you to wrap your mind around IRR and ignore comparisons of security prices without consideration of time involved and cash flows received.

Rip West
Saint Paul, MN

Mail