bivio reports: Investment Performance??
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Sorry, I misread your answer. Yes, there is no benchmarking capability for
the individual member. I thought you were saying there was no performance
calculation.
Ira Smilovitz
In a message dated 12/3/2011 3:01:37 P.M. Eastern Standard Time,
IraS1@aol.com writes:
> Sorry, I
misread your answer. Yes, there is no benchmarking capability for the individual
member. I thought you were saying there was no performance calculation.
<
The Member Performance Report does indeed calculate an IRR for each
member. However without a personalized benchmark IRR for each member to
compare vs. their individual IRR, there is no way for a member to
evaluate their IRR.
In particular, a member with a larger IRR on that report has not
necessarily done "better" than a member with a smaller IRR. Why? Because
the time period of the IRRs may be different for different members (e.g., newer
member vs. older member). Also, the timing and/or dollar amount of member
investments and/or withdrawals may be different for different members.
-Jim Thomas
I do not quite
agree.
A higher IRR is in and of
itself a measure that one member is earning a higher return in the club than
another, for precisely the reason that different members invest different
amounts of money at different times in the same portfolio but over
the same specified interval.
What you cannot readily
conclude is whether those same periodic and varying investments by a member
might not have done better (or worse), if they had been invested in say, the
SP500 for that same period of time.
Best
regards,
Leo From: club_cafe@bivio.com [mailto:club_cafe@bivio.com] On Behalf Of Jim Thomas Sent: Saturday, December 03, 2011 3:36 PM To: club_cafe@bivio.com Subject: Re: [club_cafe] bivio reports: Investment Performance?? > Sorry, I misread your answer. Yes,
there is no benchmarking capability for the individual member. I thought you
were saying there was no performance calculation. <
The Member Performance Report does indeed calculate an IRR for each
member. However without a personalized benchmark IRR for each member to
compare vs. their individual IRR, there is no way for a member to
evaluate their IRR.
In particular, a member with a larger IRR on that report has not
necessarily done "better" than a member with a smaller IRR. Why? Because
the time period of the IRRs may be different for different members (e.g., newer
member vs. older member). Also, the timing and/or dollar amount of member
investments and/or withdrawals may be different for different members.
-Jim Thomas
Hi Leo,
> A higher IRR is in and of itself a
measure that one member is earning a higher return in the club than another, for
precisely the reason that different members invest different amounts of money at
different times in the same portfolio but over the same specified
interval. <
I'd argue that different members having
invested in different amounts and/or at different times is
sufficient to make individual member IRRs incomparable with each
other. Investing different amounts at different times is, in effect, the
same thing as investing over different time periods. The more different the
amounts and timings are, the more incomparable the IRRs are.
However, it really comes down to what you
mean by "better". When the comparison is between me investing
the cash flows I have available either (A) in an investment club or (B) in
an index fund, I know what it means to ask which is "better". It's the
same as asking which of (A) or (B) has the higher dollar value at any given end
date.
When the comparison is
between (1) me investing one set of cash flows and (2) you
investing a different set of cash flows, each of us using the same
investment (club, index fund, whatever), it's no longer clear to me what it
means to ask which of us did "better". Certainly you can increase
your IRR by changing the amount and/or timing of your cash flows
(investments/withdrawals). However, that definition of "better" is too
self-referencial for my taste (bigger is better because, well, bigger is
better).
Especially when talking about a longer-term
club member vs. a shorter-term member over the same time period, the longer-term
member will commonly have a large "cash flow" at the beginning of the time
period (the entire value of their club investment at that time). Perhaps
so large that it would be impossible for the shorter-term member to make that
initial investment even if they wanted to. It's of no practical value for
me to know I could have done "better" if I had made an investment that would
have been impossible for me.
-Jim Thomas
Hi Jim, It's always fun to discuss these things with you. I still have similar questions to Leo.
No problem with this. I can see why this comparison would tell you which was the better investment.
Why? If I make investment decisions such that I achieve an IRR of 4% and you invest such that you achieve an IRR of 10% over the same period of time, haven't you done "better" at making investing decisions than I have? Haven't you been able to grow your investments faster than I have? Why couldn't that be considered "better"? Our investment decisions that would affect our IRR would include not only what to invest in but also how much and when to make the investments.
Isn't IRR the rate at which at which your investments change? In that case I'm not sure why the absolute beginning amounts would matter. If we both made investments in the same club on the same dates, would I have a different IRR if I invested 10 times the amount you did on each of the days?
If one invests on the same day and at the same time in
the same portfolio but at ten times the amount, my guess is that the IRR will be
the same for both investments. And the answer
is?
But if you start with a different initial investment, or if
your individual investments occur at different days/times and/or different
amounts ( and assuming there is some price fluctuation over time), then
your IRR will most definitely be different.
That's my story/guess! From: club_cafe@bivio.com [mailto:club_cafe@bivio.com] On Behalf Of Laurie Frederiksen Sent: Saturday, December 03, 2011 5:13 PM To: club_cafe@bivio.com Subject: Re: [club_cafe] bivio reports: Investment Performance?? Hi Jim,
It's always fun to discuss these things with you.�� I still have similar questions to Leo. �
No problem with this.� I can see why this comparison would tell you which was the better investment.
Why?� If I make investment decisions such that I achieve an IRR of 4% and you invest such that you achieve an IRR of 10% over the same period of time, haven't you done "better" at making investing decisions than I have?� Haven't you been able to grow your investments faster than I have?�� Why couldn't that be considered "better"?� Our investment decisions that would affect our IRR would include not only what to invest in but also how much and when to make the investments.
Isn't IRR the rate at which at which your investments change?� In that case I'm not sure why the absolute beginning amounts would matter.� If we both made investments in the same club on the same dates, would I have a different IRR if I invested 10 times the amount you did on each of the days?
> If one invests on the same day and at the
same time in the same portfolio but at ten times the amount, my guess is that
the IRR will be the same for both investments. <
That's
correct. It's the relative dollar amounts that matter, not the absolute
amounts. If you invest X times what I invest, but we otherwise invest in
the same thing at identical times, your ending value will be X times mine but
we'll both have the same IRR.
-Jim
Thomas
That's what I thought. So I don't understand the point you had made earlier about longer term members who could invest more at a certain beginning point than a newer member. If they both invest the same relative amounts on the same dates, they will have an equal IRR. If they don't, why can't you say one has made better or worse investing decisions when it comes to his investment in the club than the other one has? -- Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio Hi Laurie,
If you are actively making your cash
flows different (in amount or timing) than other members of a club as an
investment strategy, then I guess I might be willing to attribute a higher IRR
to those actions (combined with luck). However, I don't think that's
a typical reason for differing cash flows in an investment
club.
Say I'm age 50 and have been investing in a club
for 30 years. Say you're age 20 and just last year joined that club
to start investing. Say we're both adding the same dollar amount each
month. Hopefully you'll agree it makes no sense to evaluate who's decision
making is "better" by comparing my 30-year IRR with your 1-year
IRR.
What about comparing our 1-year IRRs over the
past year? Your 1-year IRR will be
based on a series of cash flows, the first of which (dated a year ago) will
be much smaller than mine. The first cash flow (also dated one year ago)
for my 1-year IRR will be the result of 30 years of investing
(hopefully, a significantly larger amount than yours). Either of us could
have the higher 1-year IRR.
In effect, I had an equal amount of
money invested in the club for all of the past year (the amounts
I added in later months were presumably insignificant vs. my large
year-ago cash flow). The monthly amounts you later
added accumulated to be significantly more than your initial year-ago cash
flow.
Was investing effectively all at once a year
ago a decision I made? (I guess I could have decided to withdrawn
from the club 13-months ago and then rejoined when you did.) Was
accumulating money over time (rather than, say, investing just once a
year ago and skipping the next 11 monthly investments) a decision you
made? I think it's more realistic to say the difference in cash
flows (and, hence, the difference in IRRs) was imposed on us both by
circumstance (rather than being something we actively chose vs. other
alternatives).
-Jim Thomas
Ah, the lively debate!
I agree with Jim.
I believe that IRR is a great, but much misunderstood and
mistrusted measure of the return from one investment vehicle versus that of
another. In fact, IRR may be the ONLY effective measure of return in two
different investment vehicles. Using IRR to determine relative returns in the
same investment vehicle may not be as informative. Certainly, one could use IRR
to try to model the best timing and amounts of periodic contributions to an
investment vehicle, for example, but that might lead one down the slippery
slope of market timing, et al.
In that regard, some of our members pay their whole years' dues in
January and profit in an ensuing year-long up market or lose in an ensuing
year-long down market versus the member who pays his dues every months. These
IRR differences are "real" but not necessarily useful to
consider.
That said, our Club has enjoyed a 55 year history, but does
struggle to outperform say the SP500 Index. Nor can I generate much faith or
interest in BIVIO's QPRR or any of BIVIO's performance reports. My conclusion:
people are funny and choose to believe what they want to believe without regard
to IRR or other factual metrics!
Thanks for the dialogue!
Best regards,
Leo From: club_cafe@bivio.com [mailto:club_cafe@bivio.com] On Behalf Of Jim Thomas Sent: Sunday, December 04, 2011 12:32 AM To: club_cafe@bivio.com Subject: Re: [club_cafe] bivio reports: Investment Performance?? Hi Laurie,
If you are actively making your cash
flows different (in amount or timing) than other members of a club as an
investment strategy, then I guess I might be willing to attribute a higher IRR
to those actions (combined with luck). However, I don't think that's
a typical reason for differing cash flows in an investment
club.
Say I'm age 50 and have been investing in a club
for 30 years. Say you're age 20 and just last year joined that club
to start investing. Say we're both adding the same dollar amount each
month. Hopefully you'll agree it makes no sense to evaluate who's decision
making is "better" by comparing my 30-year IRR with your 1-year
IRR.
What about comparing our 1-year IRRs over the
past year? Your 1-year IRR will be
based on a series of cash flows, the first of which (dated a year ago) will
be much smaller than mine. The first cash flow (also dated one year ago)
for my 1-year IRR will be the result of 30 years of investing
(hopefully, a significantly larger amount than yours). Either of us could
have the higher 1-year IRR.
In effect, I had an equal amount of
money invested in the club for all of the past year (the amounts
I added in later months were presumably insignificant vs. my large
year-ago cash flow). The monthly amounts you later
added accumulated to be significantly more than your initial year-ago cash
flow.
Was investing effectively all at once a year
ago a decision I made? (I guess I could have decided to withdrawn
from the club 13-months ago and then rejoined when you did.) Was
accumulating money over time (rather than, say, investing just once a
year ago and skipping the next 11 monthly investments) a decision you
made? I think it's more realistic to say the difference in cash
flows (and, hence, the difference in IRRs) was imposed on us both by
circumstance (rather than being something we actively chose vs. other
alternatives).
-Jim Thomas
Jim and all, I haven't been interested in comparing one member's returns against anothers' because if 1 member joins at the beginning of 2009 they will show a better gain than another member who joins at the beginning of 2008. I am more interested in identifying what stocks need to be sold. After holding a stock for 18 months or 30 months, for example MSFT, how would one determine if it is a stock to continue holding, or one to be challenged? After 16 years' with BI, I would think I would be more confident with knowing when to sell longterm holdings, but I am not. Perhaps it would be a good exercise to bring companies i am concerned about here and to the BI Investing for Growth Forum http://community.netscape.com/n/pfx/forum.aspx?webtag=ws-naic and to MI forum for discussion. The Model club MicNOVA last year bought more AFAM when the price dropped and I thought it was a sell due to company-specific issues. Maybe we need more heads when we are concerned about a stock to sell. I'll try to use the forums more as I used to. But there are many stocks such as BRLI that are rated so high on the SSG and MI and are poorly rated by Navellier. My experience has soured to long term investing from buying just too many stocks wtih good fundamentals and poor performance. I never see that addressed in BI-type-investing forums, except by the few of you who also do fundamental analysis, such as Dan. thanks, Etana On Dec 4, 2011, at 12:11 PM, Leo Cardillo wrote:
Etana and all,
I'd like to get back to what I think may have been
your original question (see "bivio reports: Investment
Performance??").
What if the Valuation Report (or some report), for
each stock currently held, showed the IRR over the following trailing
time periods: 12-month, 18-month, 24-month, 36-month, 52-month. As
usual in computing IRR, this would account for any dividends, purchases, sales,
splits, mergers, spinoffs, etc. during each time period. Of course, IRR
for a time period would only be shown if the stock had been held for the entire
period (a stock first purchased 30 months ago wouldn't have a 36-month or
52-month IRR).
Would that give you the information you want?
As far as I can see, the other information you wanted is already on the
Valuation Report (ticker; total #
shares; cost basis per share; total cost; total value
gain/loss).
It is already possible to get those IRR
figures by using the Investment Performance report. However, you have to
manually generate one report for each time period (change the report start date
to create the desired time period) and you need to ignore IRRs for stocks where
the date in the Return Since column is not equal to the start date.
Maybe something as simple as adding buttons to the
Investment Performance report for the above defined time periods (so you don't
have to compute dates in your head) would be enough. Or, it would be very
easy to create an Excel spreadsheet with URL links that triggered that report
for any desired set of trailing time periods.
I'd also like to invite discussion
about whether the above is *useful* information in terms of making sell (or
buy or hold) decisions.
-Jim Thomas
Yes I think it would. I remember ALWAYS being disappointed in the Treasurer's report spreadsheet because I couldn't look at it and see how we were doing with each stock. It is too hard to look at the Valuation Report, and then have to go to each stock's Investment Performance report to see how the stock did for various time periods. It makes one move on and not study performance due to frustration of the forms being not obvious and easy. Maybe something as simple as adding buttons to the Investment Performance report for the above defined time periods (so you don't have to compute dates in your head) would be enough. Or, it would be very easy to create an Excel spreadsheet with URL links that triggered that report for any desired set of trailing time periods. Are you suggesting that bivio change the Valuation Report to add IRR figures for certain defined time periods? So if we are ONLY using the SSG, then a stock could show up as a buy and maybe the PERT-A would indicate trouble, but you wouldn't see signs of trouble in this company elsewhere in the SSG. If this stock price is down for 6 months, you would see that in the IRR of the spreadsheet you are suggesting to add. I don't know if that is enough. I am using the SSG and also other information now. etana On Dec 4, 2011, at 3:49 PM, Jim Thomas wrote:
Dear Etana, Perhaps you haven't been doing as well as you'd like because you are focusing on past results rather than the future. I find that past history can be very distracting and keeps me from focusing on what is really important. I personally have been trying to avoid spending too much time looking at it. I think past history is interesting to look at to learn from but, other than that I don't see a lot of value to it for managing what you want to do for the future. The bivio valuation report is certainly not a portfolio management report. It is an accounting report that gives you the value of your partnership at any point in time. The unrealized gains/losses column on that report is especially useless for figuring out what to do next. I think it is great that your club has a portfolio manager. I think it is important for someone in a club to be accumulating all the information about all of your stocks in one place and making sure everyone knows how it adds up for your overall portfolio. If you are interested, here is a link to a spreadsheet that one of my clubs uses to help us manage our portfolio. Northern Traders Portfolio It is very similar to a Manifest Investing dashboard but we look at projections for a one year time frame rather than a 5 year one and we use our own estimates of the three fundamentals: sales growth rate, net profit margin and average projected P/E. (Disclaimer: I share this for educational and discussion purposes only. A lot of our companies have reported earnings since our last meeting. At our next meeting each stock watcher will report on what was said. We'll be updating the sales numbers and, if there's any significant news we'll be discussing whether we might want to adjust any of our judgments. If you're interested in any of these stocks, you should evaluate them on your own and come up with your own judgments.) If any of our changes in judgments caused a significant change in our projected return, that is what would lead us to sell a stock. If we have money to invest, we'll first take a look at putting it into those stocks that we already own. The only history we really look at is our portfolio IRR benchmarked against VFINX. We only started 2 and a half years ago but so far we're doing pretty well: Northern Traders QPRR Graph We find it interesting to think about and learn from what was happening during the times this graph has big changes in it. Hope that helps. -- Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio So is the QPRR something that is automatically generated and if so where do we find it? Maybe our club which started in September has not been going long enough yet to see, if not when does it become available. Thanks, Paul Madison On Dec 5, 2011, at 11:03 AM, Laurie Frederiksen wrote: Dear Etana, |
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