What is a realistic return on value investing?

[KopiKat]

I think should be like this for Case 1, assuming beginning market value means stocks and not cash...

1-Jan-12 : ($4,000) ; Beginning Mkt Value
10-Mar-12 : ($1,225) ; Injection of capital
31-Dec-12 : $6,245 ; Closing Mkt Value + Cash

XIRR = 20.5%

Ok, thx!
Have to remember that if we start off the year / beginning of period with a BUY, then it has to be treated as a new capital injection!

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That also explains why I was able to get a more conservative XIRR by shifting the <DATE> in a previous post,

Case 1 : Profitable Year

(a) <Total SELL> + <Total DIV> MORE THAN <Total BUY>
In this case, I'd use <DATE> = End Period eg. 31 Dec 12

(b) <Total SELL> + <Total DIV> LESS THAN <Total BUY>
In this case, I'd use <DATE> = Beginning Period eg. 1 Jan 12

In (a), we have a Nett Cash OutFlow, so, to be conservative, we let it idle till the Period End.

In (b), we have a Nett Cash InFlow, so, to be conservative, we let it idle to the max. by recognising it at the Period Start.

In the case of my above 2 transactions example, the Nett Cash Inflow was too small (only $20) and even when I recognised it at Period Start, the resultant XIRR is still less conservative. In such a case, we'll have to put in more effort and follow the approach as posted by 'smallcaps'.

So, for people like me, with lots of transactions and no dedicated bank account (just for stocks), better pray that we don't end up with a tiny Nett Cash Inflow at Period End. Otherwise, the humongous (learn this word from another thread) effort required in the spirit of conservertism may not be worth it!

[mrEngineer]

I have not finish reading the whole thread but have started to compute some of my figures. Starting investing from 3Q 2009 onwards and comparing to my portfolio + investment cash account now, it has grown from 18k to 32k. Difficult to say how much I put aside to investment account each month because lower in the 2009 but slightly higher in 2011. Calculated my XIRR with and w/o dividends but did not take into consideration of cash account.

Dividends are considered reinvested or not considered as outflow (put all dividend values to 0):
2009: +77%
2010: +10%
2011: -21%
31/5/2012: +18%
CAGR (throughout entire period): 1.58%

Dividends are considered as outflow:
2009: +89%
2010: +16%
2011: -18%
31/5/2012: +23%
CAGR (throughout entire period): 7.42%

Something seems not right. What I did was simple take of any purchase of stocks whole value as inflow (+) and any sale as outflow (-). Dividends are considered as outflow (-) at its date payout. For the yearly figures, I will end with the mark to market values of the year and reuse this mark to market values for the next year but in opposite +/- signs. Also, this XIRR does not seem to account for my injection of income and the idle cash in my investment cash account. Hope someone can help to point out where did I go wrong. Thanks.

[smallcaps]

I have not finish reading the whole thread but have started to compute some of my figures. Starting investing from 3Q 2009 onwards and comparing to my portfolio + investment cash account now, it has grown from 18k to 42k. Difficult to say how much I put aside to investment account each month because lower in the 2009 but slightly higher in 2011. Calculated my XIRR with and w/o dividends but did not take into consideration of cash account.

Dividends are considered reinvested or not considered as outflow (put all dividend values to 0):
2009: +77%
2010: +10%
2011: -21%
31/5/2012: +18%
CAGR (throughout entire period): 1.58%

Dividends are considered as outflow:
2009: +89%
2010: +16%
2011: -18%
31/5/2012: +23%
CAGR (throughout entire period): 7.42%

Something seems not right. What I did was simple take of any purchase of stocks whole value as inflow (+) and any sale as outflow (-). Dividends are considered as outflow (-) at its date payout. For the yearly figures, I will end with the mark to market values of the year and reuse this mark to market values for the next year but in opposite +/- signs. Also, this XIRR does not seem to account for my injection of income and the idle cash in my investment cash account. Hope someone can help to point out where did I go wrong. Thanks.

Maybe can try the excel template attached in post #211 which will cater for the injection of income and idle cash.

[corydorus]

mrEngineer, seems like your dividends are quite significant portion of your Profits.

[KopiKat]

Something seems not right. What I did was simple take of any purchase of stocks whole value as inflow (+) and any sale as outflow (-). Dividends are considered as outflow (-) at its date payout. For the yearly figures, I will end with the mark to market values of the year and reuse this mark to market values for the next year but in opposite +/- signs. Also, this XIRR does not seem to account for my injection of income and the idle cash in my investment cash account. Hope someone can help to point out where did I go wrong. Thanks.

Since you have a separate Investment Cash Account purely for Stocks Investments (I assume), you could try this,

<Start Period> : + <Mkt Value of Portfolio>
<Start Period> : + <Cash in Bank>

<Date> : + <New Cash Inflow> or - <Outflow - Withdrawals>

<End Period> : - <Mkt Value of Portfolio>
<End Period> : - <Cash in Bank>

No need to put in Buy/Sell/Dividend transactions as long as they stay within your Portfolio.

Correct? 'smallcaps' / 'swakoo' / 'corydorus' ??

[smallcaps]

Something seems not right. What I did was simple take of any purchase of stocks whole value as inflow (+) and any sale as outflow (-). Dividends are considered as outflow (-) at its date payout. For the yearly figures, I will end with the mark to market values of the year and reuse this mark to market values for the next year but in opposite +/- signs. Also, this XIRR does not seem to account for my injection of income and the idle cash in my investment cash account. Hope someone can help to point out where did I go wrong. Thanks.

Since you have a separate Investment Cash Account purely for Stocks Investments (I assume), you could try this,

<Start Period> : + <Mkt Value of Portfolio>
<Start Period> : + <Cash in Bank>

<Date> : + <New Cash Inflow> or - <Outflow - Withdrawals>

<End Period> : - <Mkt Value of Portfolio>
<End Period> : - <Cash in Bank>

No need to put in Buy/Sell/Dividend transactions as long as they stay within your Portfolio.

Correct? 'smallcaps' / 'swakoo' / 'corydorus' ??

Yep, sounds correct to me. As long as he's sure that the in/outflow are really injections/withdrawal of capital.

[swakoo]

Correct? 'smallcaps' / 'swakoo' / 'corydorus' ??

Yep, sounds correct to me. As long as he's sure that the in/outflow are really injections/withdrawal of capital.

Seems so.

Withdrawals arising from proceeds due to sales of stocks or dividends affect XIRR. Hence I advocate either NO or FULL withdrawals at all times to keep the XIRR measurement clean.

[mrEngineer]

Since you have a separate Investment Cash Account purely for Stocks Investments (I assume), you could try this,

<Start Period> : + <Mkt Value of Portfolio>
<Start Period> : + <Cash in Bank>

<Date> : + <New Cash Inflow> or - <Outflow - Withdrawals>

<End Period> : - <Mkt Value of Portfolio>
<End Period> : - <Cash in Bank>

No need to put in Buy/Sell/Dividend transactions as long as they stay within your Portfolio.

Correct? 'smallcaps' / 'swakoo' / 'corydorus' ??

Ok I tried this and the results are astonishing. I was lucky for the fact that I could calculate my monthly cashflows from my monthly balance sheet investment cash account and share portfolio as I always have used historical purchase values for my share portfolio. A simplified case with all the net cashflows for the year is worked out this way to illustrate:

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%)

Now, the question is how should i interpret the results? It seems to me that I should simply go to a fund manager, put all my money into him/her and give him my net cashflow at beginning of the year and I will get much better returns. Do note that, although I treat this as a investment cash account, there are many times that I had to withdraw from this account for large expenses.

Am I managing my money correctly? Or is it suitable for young investors to even start to calculate using cashflow method? Because somehow it does not make sense to me with negative CAGR but my cash + share account grew from 18k to 32k and I profited from investing w/o considering discounting about 6k since 3Q2009 although I put in money inside..

One question about -<Outflow - Withdrawals>, do you mean outflow minus withdrawals and a negative sign in front or negative outflow minus withdrawals?

Maybe I should try the NAV method instead..

[smallcaps]

Since you have a separate Investment Cash Account purely for Stocks Investments (I assume), you could try this,

<Start Period> : + <Mkt Value of Portfolio>
<Start Period> : + <Cash in Bank>

<Date> : + <New Cash Inflow> or - <Outflow - Withdrawals>

<End Period> : - <Mkt Value of Portfolio>
<End Period> : - <Cash in Bank>

No need to put in Buy/Sell/Dividend transactions as long as they stay within your Portfolio.

Correct? 'smallcaps' / 'swakoo' / 'corydorus' ??

Ok I tried this and the results are astonishing. I was lucky for the fact that I could calculate my monthly cashflows from my monthly balance sheet investment cash account and share portfolio as I always have used historical purchase values for my share portfolio. A simplified case with all the net cashflows for the year is worked out this way to illustrate:

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%)

Now, the question is how should i interpret the results? It seems to me that I should simply go to a fund manager, put all my money into him/her and give him my net cashflow at beginning of the year and I will get much better returns. Do note that, although I treat this as a investment cash account, there are many times that I had to withdraw from this account for large expenses.

Am I managing my money correctly? Or is it suitable for young investors to even start to calculate using cashflow method? Because somehow it does not make sense to me with negative CAGR but my cash + share account grew from 18k to 32k and I profited from investing w/o considering discounting about 6k since 3Q2009 although I put in money inside..

One question about -<Outflow - Withdrawals>, do you mean outflow minus withdrawals and a negative sign in front or negative outflow minus withdrawals?

Maybe I should try the NAV method instead..

The XIRR does seem roughly correct since total invested amount is 41k and the ending portfolio value is 32k. If the capital injections/withdrawals are correct and realized transactions are profitable, then it would seem that the loss is coming from current stock holdings (unrealized)? If that's not the case, then maybe should double check again...

Btw, I feel that 2 years is really too short to make any sort of judgement, especially when employing a value approach, since normally need to for a few years for the investment to be revalued (assuming the losses are coming from unrealized losses)

[KopiKat]

One question about -<Outflow - Withdrawals>, do you mean outflow minus withdrawals and a negative sign in front or negative outflow minus withdrawals?

Maybe I should try the NAV method instead..

Sorry, my mistake. I should put it as -<Outflow ie. Withdrawals> to make it less confusing.

Ya, I think you ought to try the NAV method also if it's not too tedious.

The XIRR does seem roughly correct since total invested amount is 41k and the ending portfolio value is 32k. If the capital injections/withdrawals are correct and realized transactions are profitable, then it would seem that the loss is coming from current stock holdings (unrealized)? If that's not the case, then maybe should double check again...

Btw, I feel that 2 years is really too short to make any sort of judgement, especially when employing a value approach, since normally need to for a few years for the investment to be revalued (assuming the losses are coming from unrealized losses)

To mrEngineer,

Yes, if I interprete correctly, Losses = -21.95% ie. calculate from $32k (Market Value + Cash) / $41k (Nett Total Cash Inflow).

Also agree that 2 years is too short to make a judgement. Further, as you'd likely started investing in 3Q09, I think you may have been embolden by the initial easy profits to put in bigger amounts, only to be hit by the correction in 2011 (STI : -17.04%).

I'd suggest you look at where the losses are coming from. Possibly, either you'd bought at high valuations (eg. Fundamental Stocks at high PE) or Junks (eg. Penny stocks or S-Chips or badly managed Trusts).

You may also want to check your XIRR for 2012 (STI +12.55% to date) and see if your portfolio is performing positively. Again, try to identify the cause. Analyse and learn from both the losses (so that you won't repeat similar mistakes) and profits (so that you can replicate).

At the end of the day, XIRR (or any performance indicator) is but just another tool to help you analyse and improve your investing skillset!

Good Luck!