What is a realistic return on value investing?

[swakoo]

-10,000 1/1/2001 bought
10,000 1/1/2003 market value
2,000 1/1/2003 cash in portfolio

XIRR 9.54%

Cashflows show dividends received 1/1/2003 (wrong!) when in fact were received 1/1/2002. Example incorrect.

I don't see anything wrong with this particular example. Why should when the dividends received make any difference if the dividends never get taken out?

unless you are calculating performance of particular counter, otherwise, the portfolio does not change no matter when the dividends received.

The XIRR is same as the 1st example, so in that sense, the answer worked out ok if the dividends were received and remained idle in portfolio. But the cash flows depicted are incorrect. The cash flows need to be understood because if the dividends were taken out as in the 3rd example, they need to be entered correctly to get the slightly higher XIRR in the 3rd example.

Bottom line: when dividends received can affect the XIRR value.

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I tested it out on my M-in-law's case and got 12.02% (Case 1) & 13.88% (Case 2) vs 12.55% (Own non-scientific method). I suppose not having a non-productive bank balance may explain the better performance for Case 2 (or perhaps it makes the denominator smaller?).

I think Case 1 is equivalent to smallcaps Example 1: dividends received and remain idle in bank balance, hence show up as unrealised outflow at end of period (in bank balance).

Case 2 is equivalent to smallcaps Example 3: dividends received and assumed taken out.

That's why Case 2 is higher than Case 1.

this is a very quick mountain tortoise analysis (and may be wrong) 'cos going for lunch now...

[freedom]

-10,000 1/1/2001 bought
10,000 1/1/2003 market value
2,000 1/1/2003 cash in portfolio

XIRR 9.54%

Cashflows show dividends received 1/1/2003 (wrong!) when in fact were received 1/1/2002. Example incorrect.

I don't see anything wrong with this particular example. Why should when the dividends received make any difference if the dividends never get taken out?

unless you are calculating performance of particular counter, otherwise, the portfolio does not change no matter when the dividends received.

The XIRR is same as the 1st example, so in that sense, the answer worked out ok if the dividends were received and remained idle in portfolio. But the cash flows depicted are incorrect. The cash flows need to be understood because if the dividends were taken out as in the 3rd example, they need to be entered correctly to get the slightly higher XIRR in the 3rd example.

Bottom line: when dividends received can affect the XIRR value.

How could the date the dividends received matter? to the whole portfolio (cash + investment as a whole), there is no cash inflow or outlow.

in your example, it precisely looks like a subsidiary is consolidated, but the dividends from the subsidiary counted as income/profit. is it right?

[shanrui_91]

Can i assume that I am calculating correctly so long as the XIRR does not deviate too much from the NAV method?

[smallcaps]

I think so... isn't XIRR same as NAV method? Assuming we are using the Mother-in-law approach...

[Temperament]

After reading all the postings here about XIRR, i feel quite comforted. Because XIRR is from Microsoft Excel and i think Microsoft Money financial software has Excel properties in it.
Still one has to make sure no "GIGO". So i started with a Virtual Banking account for stocks portfolio investing only because i were alerted by the software asking me to track all my cash flow to be accurate. Not only i started a Virtual Banking Account, i make this account 2 to 3 the actual money i am going to invest in stocks. So i think i have not GIGO the software. Anyway i am still happy with using this software though it has been discontinued. You can get it free now from the internet. Go and try it. Especially for people like me it is God's send. It is also made for making smarter people live an easier life. Enjoy. Then help me to use it better.

NB: Help!
Can anyone tell me is it wrong to start first with a Virtual banking account 2 to 3 times larger than actual investible money before the first buy transaction. Is a virtual banking account a garbage in data already as consider by the software? Any software expert anywhere? Actually can the software differentiate the beginning Banking Account whether it is $100,000.00 or $1000'000.00? Which is real money account and which is Virtual money account? Only i know how much is actual money and how much is virtual money in this stock portfolio. The software does not care. It will treat every cent and every dollar the same. Am i right

[swakoo]

How could the date the dividends received matter? to the whole portfolio (cash + investment as a whole), there is no cash inflow or outlow.

In Example 3 above, there is outflow so timing of dividend received (and taken out) matters.

[freedom]

How could the date the dividends received matter? to the whole portfolio (cash + investment as a whole), there is no cash inflow or outlow.

In Example 3 above, there is outflow so timing of dividend received (and taken out) matters.

what I am talking about the case where dividends are not taken out.

of course if dividends are taken out, there should be outflow.

but if not, it does not matter when the dividends are received. be it the first day of the year or the last day of the year.

[swakoo]

... isn't XIRR same as NAV method? Assuming we are using the Mother-in-law approach...

only if MIL's portfolio comprises just initial cash in, stock purchases, dividends retained. Eg. no additional cash injections from SIL, etc. whose timing can affect rate of return.

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what I am talking about the case where dividends are not taken out.

of course if dividends are taken out, there should be outflow.

but if not, it does not matter when the dividends are received. be it the first day of the year or the last day of the year.

OK now we are on the same page.

[smallcaps]

How could the date the dividends received matter? to the whole portfolio (cash + investment as a whole), there is no cash inflow or outlow.

In Example 3 above, there is outflow so timing of dividend received (and taken out) matters.

Actually, the comparison was meant to be between example 1 and 2. It was to show that in the case whereby dividends are reinvested into the portfolio immediately, then there is no need to consider the outflow/inflow of dividends for XIRR

[swakoo]

Actually, the comparison was meant to be between example 1 and 2. It was to show that in the case whereby dividends are reinvested into the portfolio immediately, then there is no need to consider the outflow/inflow of dividends for XIRR

I see, yes QED - thanks.