What is a realistic return on value investing?

[KopiKat]

I suppose comparing compounded returns of salary + investment is not terribly meaningful for assessing investment performance. Let's say you have $500 when you start work, every year you save $1000, and make 0% on your investments, after 10 years you then have 'compounded' at 35%. But it does reinforce Buffett's point that it's much easier to 'grow' a small sum of money than a large one.

I rate myself as a serious skeptic (go read my posts in the Sunday Times thread where I enjoy digging up facts to tear apart those success stories). But, after having read a few hundreds of their posts, I have formed a mental image of a responsible and experienced investor who does their research well. I can't imagine them sharing such performance figures if it's predominantly due to savings and without adding a disclaimer.

I seriously doubt they started with $500, unlikely to be $1,000 or even $10,000. My Crystal Ball says at least 5-figures (no decimal points included) and very likely above $50k. I won't even be surprised if it's 6-figures.

But, yes, in the initial years, the active income from a full time job will greatly skew the 'performance' data. However, once the base becomes large enough eg. new money drops to <10% of base, the investing skillset starts to dominate the performance.

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I have an additional source of income and so the comparison is not fair.

I don't care! I've already added you mentally to my list of GrandMasters...

[dzwm87]

But, yes, in the initial years, the active income from a full time job will greatly skew the 'performance' data. However, once the base becomes large enough eg. new money drops to <10% of base, the investing skillset starts to dominate the performance.

You can adjust for savings inclusion and calculate out the "pure" investment returns. I have been doing that for my own portfolio.

However, it does means you have to be actively calculating your returns. Adding savings to returns can greatly skew your performance evaluation and create false confidence.

[freedom]

you can't totally exclude other income from your investment return. other income often provides you comfort to go for higher return.

[d.o.g.]

Let's say you have $500 when you start work, every year you save $1000, and make 0% on your investments, after 10 years you then have 'compounded' at 35%.

You have to measure your portfolio like a unit trust i.e. you calculate NAV per unit. Adding money increases the number of units, but doesn't change NAV. So in this case, after 10 years your NAV remains the same as when you started i.e. IRR is zero.

There was an infamous case in the US, where the investment club by some women in Beardstown, Illinois supposedly compounded at 23.4% per year from 1983 to 1994, against 14.9% for the S&P during this period. They got lots of media attention and published a best-seller. Later on it was discovered they had not accounted for injection of funds, and when adjusted for this, their IRR was only 9.1%, way behind the S&P. Price Waterhouse (now PWC) confirmed the 9.1% figure. So you see, you absolutely have to adjust for funds injected (or withdrawn).

People who want to compare returns have to make sure they are comparing apples to apples. It took me a while to figure out how to compute NAV too. Best done with a spreadsheet.

[swakoo]

Welcome back from the Gobi desert (?)

Thx! But, you see me too up. The only desert I saw was the one on Mars when I watched the inflight movie 'John Carter'.
I imagine you may be blessed / cursed by a good memory, perhaps like me, haha..

This person below featured in your blog - is not you?

[Image: hm7p0001-%2865%29_16be3f.jpg]

Having participated in Charity Swim 2011, it was truly a great experience to have combined two great passions of mine; sports and charity. Inspired by this, I will be doing the Gobi March in June 2012, not only as a personal challenge but also in hope to raise some funds for Student Advisory Centre.

The Gobi March is a 250-kilometer (155-mile) 7-day, 6-stage foot race. The course of the Gobi March takes competitors across a wide variety of terrains including dirt tracks, sand dunes, dry river beds, hills, villages and more. Competitors must carry all their own equipment and food, are only provided with water and a place in a tent each day but are supported by professional medical and operations teams.

To show your support, I hope you can help by donating via this online link: https://www.give.sg/TeamGIVE/kwanie/a-de...the-future

[dzwm87]

Let's say you have $500 when you start work, every year you save $1000, and make 0% on your investments, after 10 years you then have 'compounded' at 35%.

You have to measure your portfolio like a unit trust i.e. you calculate NAV per unit. Adding money increases the number of units, but doesn't change NAV. So in this case, after 10 years your NAV remains the same as when you started i.e. IRR is zero.

There was an infamous case in the US, where the investment club by some women in Beardstown, Illinois supposedly compounded at 23.4% per year from 1983 to 1994, against 14.9% for the S&P during this period. They got lots of media attention and published a best-seller. Later on it was discovered they had not accounted for injection of funds, and when adjusted for this, their IRR was only 9.1%, way behind the S&P. Price Waterhouse (now PWC) confirmed the 9.1% figure. So you see, you absolutely have to adjust for funds injected (or withdrawn).

People who want to compare returns have to make sure they are comparing apples to apples. It took me a while to figure out how to compute NAV too. Best done with a spreadsheet.

Realise there was a thread talking on the same topic - http://www.valuebuddies.com/thread-1268.html

[KopiKat]

This person below featured in your blog - is not you?

Nope! I don't even know him. My co-blogger's friend, I think.
As for me, I'm closer to using a walking stick soon, rather than doing any endurance race!

[CityFarmer]

Let's say you have $500 when you start work, every year you save $1000, and make 0% on your investments, after 10 years you then have 'compounded' at 35%.

You have to measure your portfolio like a unit trust i.e. you calculate NAV per unit. Adding money increases the number of units, but doesn't change NAV. So in this case, after 10 years your NAV remains the same as when you started i.e. IRR is zero.

There was an infamous case in the US, where the investment club by some women in Beardstown, Illinois supposedly compounded at 23.4% per year from 1983 to 1994, against 14.9% for the S&P during this period. They got lots of media attention and published a best-seller. Later on it was discovered they had not accounted for injection of funds, and when adjusted for this, their IRR was only 9.1%, way behind the S&P. Price Waterhouse (now PWC) confirmed the 9.1% figure. So you see, you absolutely have to adjust for funds injected (or withdrawn).

People who want to compare returns have to make sure they are comparing apples to apples. It took me a while to figure out how to compute NAV too. Best done with a spreadsheet.

Interesting info, measure with NAV method? I am learning new stuff today. I assume it is the same as issue new share (or share-buy-back) in stock, the "profit" will be diluted (or improved) after that.

I am using a "non-professional" method . Just a simple division at the end of the year, exclude injected/withdraw fund.

I plan to use the excel IRR function to track, and i already started to record every transactions in a list. I assume it will provide the same result as the NAV method.

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I rate myself as a serious skeptic (go read my posts in the Sunday Times thread where I enjoy digging up facts to tear apart those success stories). But, after having read a few hundreds of their posts, I have formed a mental image of a responsible and experienced investor who does their research well. I can't imagine them sharing such performance figures if it's predominantly due to savings and without adding a disclaimer.

I seriously doubt they started with $500, unlikely to be $1,000 or even $10,000. My Crystal Ball says at least 5-figures (no decimal points included) and very likely above $50k. I won't even be surprised if it's 6-figures.

But, yes, in the initial years, the active income from a full time job will greatly skew the 'performance' data. However, once the base becomes large enough eg. new money drops to <10% of base, the investing skillset starts to dominate the performance.

IMO, to get rich with investment, the pre-requisite should be a size-able starting fund. Definition of rich (oh.. my 2nd nature come again ) is the yearly return of investment > yearly expense needed, by a margin of 20%.

I agreed with all of you, esp the "work first and invest second" during the fund accumulation phase. Till a critical mass of fund achieved, the probability of getting rich should be pretty high.

[paullow]

Hi,
Wat u said is very true n practical. I got analogy which fits my investing profile. It is in analogous with a person waiting for at a busstop to get to his destination. He knows where's he going ie he wants 10% pa returns. Perhaps 2 buses can take him there albeit different routes. I view these buses as the company n the passenger as the funds. Wrong bus taken, funds gets stuck in bus unless one bites bullet n suffers a loss while alighting n hopefully getting onto a correct bus. If bus ends up in accident n has casulties, its analogous to company collapsing.
I know what route say bus 100 goes due to bus directory or from past exoerience. This is analogous to past performance of company.
So i view my funds as getting on a vehicle to get to my destination ie roi.
And bus routes do change over the years so the bus which is apt now may not be so 5yrs later.
Hope i din bore or anger anyone by my illustrative n simplistoic analogies.
Pl

[Temperament]

i am very sorry to say what all of you say is quite "cheem" to me. As i am not so educated i am forced to find a financial software to help me to keep track of my money and assets. So i find "Microsoft Money" to track my stocks portfoloio since day one 23 years ago. And i have all my day one stocks transactions till now; yet i am not sure how accurate is this software. I did try to find fault with this software but i can't find anything wrong so far. Maybe some expert can help? Of course i understand no software can accomodate or overcome "GIGO". So hopefully i have made all my entries correctly all the time. Frankly so far so good. i am quite happy with this software.

NB: Anyone using "Microsoft Money" like to to share, anything?