What is a realistic return on value investing?

MrEngineer Wrote:1/1/2010: +26000 (initial cashflow)
1/1/2011: +5000 (net inflow for 2010)
1/1/2012: +10000 (net inflow for 2011)
1/6/2012: -32000 (current cash balance + market value)

XIRR = -13.2% (actual monthly cashflow is -10%)

As a quick check I compared these cash inflows against the STI (assuming you could buy an ETF). I used the STI's closing value the day before the trade.

1.1.2010 - buy STI = $26,000 / 2,897.62 = 8.973 units
1.1.2011 - buy STI = $5,000 / 3,190.04 = 1.567 units
1.1.2012 - buy STI = $10,000 / 2,646.35 = 3.779 units

Altogether you would have 14.319 units, as of May 31 these would be worth $2,772.54 each, or a total of $39,700.

So on that simplistic comparison, if you'd just bought an STI ETF, you would have lost about 3% over the same period of time. Losing 22%, as your data suggests, points to heavy losses in one or more stocks. It would be a good idea, as other members have said, to take a closer look to see if you can identify what went wrong, and what lessons you can learn.

That's the whole idea of XIRR. To measure, compare and to review for the future.

Comparison against self
Comparison against Peer
Comparison against SIT or other indexes or funds

Data is hard truth to overcome perceptions.

Thanks all for your response. It seems likely that my data are more wrong than correct. I have another 2 more accounts (working capital account, emergency fund account) which i did not include in the picture and there are many transactions internally between the accounts and externally between the investment accounts to pay for significant large expenses as it has a cheque book.

This is because it seems unreasonable for me that I started with 18k purchase price / capital + all the mambo jambo for 3 years = 18k cash + 14k market values. If I analyze w/o compounding, throughout the 3 years, i have profited 10k realised capital gains, 4k dividend and 8k paper loss. The question is whether my injection of funds and the idling cash has cause the investment performance to drop during the period of time but should not make it negative. Another evidence one can find is that if I use the methods Musicwhize or CityFarmer and KopiKat Case I (i think) which is using purchase price, selling price and dividends as cash in/out flows, my non-dividends and dividend returns are +1.58% and +7.42% respectively.

I should really go reexamine my cashflows to see what went wrong and I think the problem I am having now is what corydous have mentioned. Investment performance benchmarking or Portfolio performance benchmarking..

mrEngineer Wrote:If I analyze w/o compounding, throughout the 3 years, i have profited 10k realised capital gains, 4k dividend and 8k paper loss.

These do not gel with your previous simplified cashflows which imply losses.

As has been said before, "garbage in, garbage out". Something is wrong with your data somewhere.

(08-07-2012, 01:56 PM)d.o.g. Wrote:

mrEngineer Wrote:If I analyze w/o compounding, throughout the 3 years, i have profited 10k realised capital gains, 4k dividend and 8k paper loss.

These do not gel with your previous simplified cashflows which imply losses.

As has been said before, "garbage in, garbage out". Something is wrong with your data somewhere.

In the approach you used, the Net Inflow for 2010 & 2011 has to be NEW FUNDS going into your Stocks Acount. I suspect you may have used <SELL + DIV - BUY> as your Net Inflow (it should be Nett OutFlow since you mentioned you'd made realised profits). In that case, you are actually using a similar approach as my 'conservative approach' and it should be,

1/1/2010: +26000 (initial cashflow)
1/1/2011: -5000 (net outflow for 2010)
1/1/2012: -10000 (net outflow for 2011)
1/6/2012: -14000 (market value)

XIRR = 5.55%

A much cleaner way for you, since you have a dedicated bank account,

1/1/2010 : +26000 (initial cashflow)
1/6/2012 : -32000 (current cash balance + market value)

XIRR = 8.97% (assuming no NEW Funds Inflow)

Ok I have manually split my returns on ever year and calculate the returns accordingly w/o taking consideration of all cashflows in/out during the year but at the increase in end of the year market value from the year beginning + dividend earned in that year + capital gains in that year. This is my results:

2009: +16.7%
2010: +17.2%
2011: -14.6%
2012: +8.5%

This is cleanest way to look at it and need not worry about how the returns will correspond to beginning or at the year of the year. It seems like the results are closest fit with Dividend included XIRR method used by Musicwhiz and CityFarmer. However, the results will only take you how good/bad you are with your investments (and your stock picking skills) as it assumes you have infinite capital to draw on but not how good you are managing your portfolio and other factors like opportunity cost of using funds or factoring any contribution or withdrawal to your account or considerations on the decisions taken on cash/equity ratio.

In order to perform the cashflow kind of XIRR properly, I believe you must have a real clean account with limited withdrawals or stock accounts just for investments. I think this is somewhat absurd as if you really limit your withdrawal, it will seem like you are investing for the sake of the numbers and not to enjoy the fruits of the labour if you have some winnings.

Nonetheless, thanks everyone. Learnt alot from this exercise. Will try the NAV method when I have time again.

Yes, it is really absurd to increase your investment risk when you are not ready, opportunity to maintain performance or limits your cash flows to make your XIRR looks good. Things may go very bad. Instead we should use XIRR result to help improve oneself.

(21-06-2012, 12:23 AM)d.o.g. Wrote: ...
3. Historical volatility is high. I have never had an "average" year where returns were 20-21%. Sometimes it was much higher, sometimes much lower, even negative (2007, 2011) (edit: 2008, 2011).
...

Not sure is there a pattern of the market or coincidence. 2008 and 2011 are negative for me as well. Overall XIRR >10% on average.

Hi all

Like to check with you if I am doing the XIRR function correctly. I do not have a separate bank account to track available cash for stock investments, and just want to use XIRR to compute the returns from my stock portfolio (no idle cash).

Start of year 1 (1/1/xx): -(market value of portfolio)
Date: -(purchases)
Date: + Div received
Date: + sales proceeds
End of year 1 (31/12/xx): +(market value of portfolio) or A
--> Compute CAGR for year 1 using XIRR

Start of year 2:-(market value of portfolio or A)
repeat the process
Eng of year2: +(market value of portfolio or B)
--> Compute CAGR for year 2 using XIRR

---> compute another overall CAGR for whole investment period of 2 years.

Is the above method acceptable for my purpose?

Thanks for your advice.

(31-12-2013, 10:23 AM)jovialger Wrote: Hi all

Like to check with you if I am doing the XIRR function correctly. I do not have a separate bank account to track available cash for stock investments, and just want to use XIRR to compute the returns from my stock portfolio (no idle cash).

Start of year 1 (1/1/xx): -(market value of portfolio)
Date: -(purchases)
Date: + Div received
Date: + sales proceeds
End of year 1 (31/12/xx): +(market value of portfolio) or A
--> Compute CAGR for year 1 using XIRR

Start of year 2:-(market value of portfolio or A)
repeat the process
Eng of year2: +(market value of portfolio or B)
--> Compute CAGR for year 2 using XIRR

---> compute another overall CAGR for whole investment period of 2 years.

Is the above method acceptable for my purpose?

Thanks for your advice.

Yes, it should give the multi-year CAGR. It will give a particular year XIRR, if the input is for that year.