Cory Diary: Short Coming of Cumulative XIRR of Lifetime Result

Has been in market for more than 15 years. Over the years strategy changed with ones experience and learning. Sometime change for the better, sometimes worst. One indication is using Cumulative XIRR across all trades through the years.

For Cory, due to strong performance in 2019, the Cumulative XIRR since 2007 is now 7.2% as above. However this is from 2007 when Cory is still young man with all sort of ideas. 

How good is it to measure progress over time. Logically the cumulative will have to go up. But is this assumption right ? Let's try another table by injecting additional 10k profit into 2 scenarios. First scenario in Year 2007 and the second scenario in Year 2019 below.

From the above table,  there are much larger improvement in the score in 2007 ( 7.54% ) which is much more than Year 2019 ( 7.36% ) can provides. This is probably due to portfolio size and compounding over the years. What this mean is that it will be harder to push up the cumulative value even with good performance in later year. It will have take few more good years to see recovery.

To overcome this issue, we may have to use rolling years to accommodate this limitation. Here's the table. So you can see at 13th, 10th and 7th Years period  ... is down trend.

Now, if we have a major strategy change 7 years ago, we could see the progress at 5 years, 3 years and 1 year ago. This way "very past" performance do not cloud the future view.

What I am still deliberating is.... if a Guru has fantastic performance in his early years of investment life, will his performance stick with him for later years using cumulative metrics ?


Cory
2020-0107

Cory Diary : Using End Date for XIRR for Annual Returns

Have been constantly seeing usage of Annual XIRR with current date. This is quite "misleading" as it will provides explosive growth for positive returns of portfolio in the early part of the year.

For my portfolio for using current date for XIRR YTD will be 57% for 2019. This is quite shocking number considering my absolute YTD returns are just over 5.6%.

To provide a more balance picture, using XIRR End Date 31 Dec 2019, my XIRR YTD will be 5.8% which reflects closely to the absolute YTD returns of 5.6%.



Cheers

Cory
2019-0215

Cory Diary : Why we should use XIRR for Performance Metric

Many may have heard of Time Weighted and Money Weighted. There continues to be confusion on what metric to use in performance measure. For retailers and typically investors I dare to say it has to be Money-weighted. I just read an article and reinforce my understanding that most users should only use Money-Weighted.

Time weighted by funds usage to me is quite misleading on performance over time if you read further down. Fortunately, when we says money weighted we are referring to XIRR in Excel.

Here's the table i extract from the article. (link )

Both methods have $1M injected by 2 parcels. Initial and mid June. Both losses 200K in the end. Logically performance should be negative at the end of the period. However TWR registered 146% good performance whereas XIRR registered -30%. Enough Said. Stick to XIRR (MWR) please.

If sales people tell you their fund performance is good, be wary. They could be using TWR. Is not intuitive for normal people but I wouldn't say they are wrong. LOL.


Cory
20190108

Cory Diary : Astronomical Returns

I have been seeing astronomical returns from some forum recently. It easily get people attention. That's what it does. But what's matter at the end of the day is how much you truly made at specific time frame. Why I say that is because market goes up and down. And relative performance measures need to account for time frame with reasonable period length to allow for stability.

STI Index

STI with Dividends from 2009-2016 = 9% annual returns after cost.

Let's take a peak of some period after global financial crisis (GFC) based on STI. Since is reasonable not to choose the bottom. At a height of STI 1900 on May 2009 will be something i am comfortable with. The current STI Index is at 2800. The XIRR ( Annualised returns ) excluding dividends are 5.3%. If we are to include dividends that will be like 8~9%. That's like 7 years after GFC.

Percentage can be quite misleading as it is open to abuse with time, value weight-age and cost structure. There is also price spread which can cause a large dent and trustworthiness. So to ball park a figure, if we are to put $100,000 into a fund 7 years ago just using 5.3% annual return figure, your value should be around $147,000 excluding "dividends", and we are taking the lowered STI price of today. Meaning 47% profit is the Minimum Expectation.

Hello ! you have to have 47% profit at that specific time frame because that is what all investors should have as a baseline. And I have even excludes dividends. So are you getting this amount in total else is time you question your judgement.

Cory

20161016

Cory Diary : Calculating Return in Equity - Part 2

In this continuation of calculating equity return, let's simulate a scenario that on certain years we have very good returns. And we feel rich that during that periods, mentally we think we can afford to lose. This can be at portfolio level or Individual Stock that we have grown to love.

As the table above, I picked year 2009 and 2012 where Cory has strong gains and have them tweaked about 50% lower returns as we are less careful with money and that we have fallen into a tunnel vision of justifying more risk on just one or two stocks which have been been a key lifter of the entire portfolio.

This is not unrealistic. Is quite common we see at portfolio level we are doing well just because of a few of them or maybe even just one counter. And if that one is soured later on, we like to know the impact.

From the table we can see Annualised returns reduced to 4.2%. And for the above example is a $61, 000 hits on return of $100, 000 investment. Do remember return on such over 10 years compounded is quite significant even for just 1% point.

The next time you feel a particular stock has gained 100% return for you that you can afford to lose them back since at counter level you will not lose, better think again.


Have a nice day.

Cory
20160918

Cory Diary : Calculating Return in Equity

When I look across STI Index back 10 years there are 3 major down levels. If your investment have survived this three crisis give yourself 2 STARS.

1. 2008 US - Sub Prime Financial Crisis
2. 2011 European - Greece Crisis
3. 2015 China - Stock Crisis

When we start measuring our performance matters. Anyone who invest right after 2008 bottom will most likely survive well today especially for those who invest big. If you did big please give yourself 2 STARS.

Using $100,000 Investment seed as if I am a Fund Manager, applied to my past 10 years performance. And then compared to two tweaked samples calculation on strong and mediocre performances.

The first table is Cory returns. 10 years Annualised return is 6.7%. I give myself 2 STAR.

The 2nd Table has return tweaked with smaller losses in year 2008 from -52.5% to -25%. And in year 2011 from -13.1% to -8%. This 2 years are periods where market is bad. 10 Years annualised returns boosted to 9.5%. Give yourself 3 STARS if you hit this level of performance.

The 3rd Table has return tweaked to have lower return in other years only. 10 years Annualised returns come down to 2.3%. This is in the upper range of fixed deposits. Still better than cash. 1 STAR.

What I understand from the tables are reducing large looses are important. Consistent performance is even more critical.

How many STARS you have ?


Cory
20160911

Cory Diary : Fascination with XIRR

XIRR is a feature use in Excel to measure rate of returns. Best for measuring irregular returns such as stock transactions. XIRR is also the formula we enter in Excel spreadsheet to measure investment performance in a compounded way.

Just type in a single cell in the Excel "XIRR(" and a help note will appear "XIRR(Values,Dates,[guess])". Values is the value of your trade transaction. Date is the day transacted. Typically we can ignore "[guess]".Basically we only need to care for "XIRR(Values,Dates)". If you have weird answer, then "[guess]" needs to be use but this is rare and is due to mathematical solution which has more than one answer.

We know through common sense that for $1000 investment in $1 stock price of a company, if we are able to sell at $2 after holding for a full year, the return will be 100%. If we use XIRR, it will shows 100% too as table 1.

Table 1 on 100% return exactly a year

1-Jan-15	($1,000)	Invested Amount
1-Jan-16	$2,000	Take Profit
XIRR	100%

What if I am only able to sell my stock at $2 on 20th Feb'16 instead of earlier 1st Jan'16 date. This will get complicated in calculating my performance mentally but not with XIRR as in Table 2 below. The performance is 84% which make sense since we take longer to achieve the same profit as in table 1 above.

Table 2 on 100% return more than a year. Time is money !

1-Jan-15	($1,000)	Invested Amount
20-Feb-16	$2,000	Take Profit
XIRR	84%

What if I am able to sell my stock at $2 within  7 months time. The answer is in Table 3 below.

Performance shoot up to 230%.

Table 3 on 100% return in just 7 months

1-Jan-15	($1,000)	Invested Amount
1-Aug-15	$2,000	Take Profit
XIRR	230%

In Summary

We are use to think how we earn last year compare to this year. The problem is this year has not ended. Is only 28 July today and we have 5 more months to go before we know how we perform in 2016. Therefore using today performance measured will skew a lot higher in % if you make an interim profit but much lower in % if is an interim loss of the year.

Thus, Table 3 performance is only for interim reference and not the final result till the year ended. To maintain 230% return at year end, your profit needs to be able to scale to $3300 as shown in Table 4. Which is why performance will decrease over time as chances are, we will not be able to hit $3300 profit from a single trade.

Table 4 To achieve 230% for a full year period

1-Jan-15	($1,000)	Invested Amount
1-Jan-16	$3,300	Take Profit
XIRR	230%

Over the years with consistent performance measured in all your trades, if we are able to achieve strong XIRR results, It will likely reflect your performance capability. The longer the better. I would say 5 years minimum so that a single good trade in your earlier trading days will be properly "amortised" in a compounded way. This is lifetime XIRR measure and a key portfolio measuring tool.

Final Final !

Another thing to watch is the weight-age. The bigger investment you make the larger the impact too on XIRR. This is especially so in later years since with growing income and returns, your investment will get significantly larger that will minuscule your XIRR performance in your earlier years in comparison.

Thus, be aware of fund manager which market their performance using short period and low fund amount to jack up their performance. Only to see their performance flatter after you have subscribed to them.

Cory

20160728