A Newbie Guide to Investing

[Temperament]

XIRR or NAV may be too complicated calculations for my standard (aka just simple cal for me).

Fortunately for me i discover Microsoft Money financial software (now discontinued) since i started to invest in 1987/88. So i use this software to track my stock portfolio and assets until now.

You can give this software a trail; then you may find it is quite simple to use and accurate too. Like all software, be careful of your data inputs, RIRO. Any financial software is as good as how you use it.
After you give it a trail, may be you can tell me (aka FB) where i am wrong using this software.
Share and share alike.
If you like you can PM me.
Thanks.

[CityFarmer]

Hi all,

Yet another newbie question.

How do you keep calculate your returns when you buy shares and sell shares over different time period?

Scenario 1 (easy, no answer needed)
I buy 2 different stocks on 1 Jan 2010 (assuming markets are open) and sell on 31 Dec 2011. I use the initial outlay and the final value and calculate the CAGR.

Scenario 2 (this one confuses me)
I buy 1 stock on 1 Jan 2010 and 1 Stock on 1 Feb 2010 and sell both on 31 Dec 2011. To make it easier to explain, let's attach some values to this.
1 Jan 2010, buy 1 lot at 2.00, sell on 31 Dec 2011 for 2.50
1 Feb 2010, buy 1 lot at 10.00, sell on 31 Dec 2011 for 10.50

Scenario 3 (confuses me even more)
1 Jan 2010, buy 1 lot at 2.00, sell on 31 Dec 2011 for 2.50
1 Feb 2010, buy 1 lot at 10.00, sell on 31 Oct 2010 for 10.50

How do I calculate the returns on this portfolio as at 31 Dec 2011? Do I need to include the stock that was sold in 2010?

I think the main idea is, I would like to find out what are my returns over my next decades of investing, how do I go about calculating that? One way I thought of is to keep an investing bank account and just take note of the amount of money I've put in there and take note of the amount I have at the end of the say 20-30 time period? However, if I'm depositing money into that account annually, wouldn't that affect the calculation of my returns?

Hope my question isn't too confusing.

Thanks!

IIRC, there are two methods, NAV (net asset value) and XIRR (internal rate of return).

NAV is a professional method used by fund managers, while XIRR can be easily measured with MS Excel.

There were detail discussion on the two methods in this forum, but I lose track on them. You might want to do a search.

Thanks!

I found that discussion in the forums, I think it was started by Temperament. I think it was the thread regarding performance in 2012.

XIRR I kinda understand the excel function, but don't quite understand what goes behind the calculation...

NAV method still don't quite understand

You might also refer to the following tread. Look for posts of Mr. d.o.g. for the NAV. There were also various tricks or pitfalls to avoid for XIRR.

http://www.valuebuddies.com/thread-2152-...l#pid79834

[Ferns]

If I have just started investing and have say 50k to invest, would it be better to:

(a) Hold on to cash and wait for next crash?
(b) Invest a certain percent of 50k, then build up cash reserves and wait for next crash?
© Other approaches?

Why I am asking? I don't quite understand which is more "efficient".

On one hand, it is better to buy when things are undervalued, so good to wait for that to happen, but we don't know when that will happen, so how? Invest or don't invest?

On the other hand, if we try to invest then end up buying good company at a bad price. Doesn't sound like what WB advocates.

[CityFarmer]

If I have just started investing and have say 50k to invest, would it be better to:

(a) Hold on to cash and wait for next crash?
(b) Invest a certain percent of 50k, then build up cash reserves and wait for next crash?
© Other approaches?

Why I am asking? I don't quite understand which is more "efficient".

On one hand, it is better to buy when things are undervalued, so good to wait for that to happen, but we don't know when that will happen, so how? Invest or don't invest?

On the other hand, if we try to invest then end up buying good company at a bad price. Doesn't sound like what WB advocates.

It is a million-dollars question

Timing the market is always difficult, if not impossible, even for Mr. Buffett. I have given up on that.

What not focus on IV valuation, and buy with your comfortable MOS, and appropriate diversity, when opportunities arises, regardless of crash or not, partial or full?

[NTL]

If I have just started investing and have say 50k to invest, would it be better to:

(a) Hold on to cash and wait for next crash?
(b) Invest a certain percent of 50k, then build up cash reserves and wait for next crash?
© Other approaches?

Why I am asking? I don't quite understand which is more "efficient".

On one hand, it is better to buy when things are undervalued, so good to wait for that to happen, but we don't know when that will happen, so how? Invest or don't invest?

On the other hand, if we try to invest then end up buying good company at a bad price. Doesn't sound like what WB advocates.

It is a million-dollars question

Timing the market is always difficult, if not impossible, even for Mr. Buffett. I have given up on that.

What not focus on IV valuation, and buy with your comfortable MOS, and appropriate diversity, when opportunities arises, regardless of crash or not, partial or full?

To me, don't just buy coz you have the money to invest. Take a look at the companies you are interested, take a look at the economy, take a look at the stock market general ratios. When you find something worth putting your money in, then take a shot at it.

Nothing wrong with holding cash, really.

[Temperament]

i think i have posted this before but i think it's worth a 2nd post.
What WB think about Market Timing?
(i have learned and feel console by his view)

And holding CASH is like holding an "option" in the market. i think he said something like that too.


{Buffett is no market timer. He looks at valuations. That much is obvious. He always gives his viewpoints of the *valuation* of securities and markets, and he never makes predictions about *when* the market will change. He doesn't have to, because if he is right about the valuation, then it will lead to a good investment return regardless of whether he gets the timing right. However, when the market gets really out of whack, it *appears* as if he is timing the market because severe over- or under-valuations are not a stable situation.}

As Buffett once wrote:

“We try to *price*, rather than *time*, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable. Why scrap an informed decision because of an uninformed guess?

We purchased National Indemnity in 1967, See's in 1972, Buffalo News in 1977, Nebraska Furniture Mart in 1983, and Scott Fetzer in 1986 because those are the years they became available and because we thought the prices they carried were acceptable. In each case, we pondered what the business was likely to do, not what the Dow, the Fed, or the economy might do. If we see this approach as making sense in the purchase of businesses in their entirety, why should we change tack when we are purchasing small pieces of wonderful businesses in the stock market?”
- 1994 Letter to Berkshire Hathaway shareholders
http://www.berkshirehathaway.com/letters/1994.html}
Shalom.

[yeokiwi]

If I have just started investing and have say 50k to invest, would it be better to:

(a) Hold on to cash and wait for next crash?
(b) Invest a certain percent of 50k, then build up cash reserves and wait for next crash?
© Other approaches?

Why I am asking? I don't quite understand which is more "efficient".

On one hand, it is better to buy when things are undervalued, so good to wait for that to happen, but we don't know when that will happen, so how? Invest or don't invest?

On the other hand, if we try to invest then end up buying good company at a bad price. Doesn't sound like what WB advocates.

STI index was 0.01% ahead at the end of 2013 as compared with end 2012.
But, we have someone here that had a gain of 40% for 2013 with 50 stocks.(http://www.valuebuddies.com/thread-4117-...l#pid66841)
So funny, the market was flat but this guy actually got a good gain with 50 stocks.(if you trust what he had said)

So, should we invest in the market in 2013 if I tell you that the market would be flat in 2013 in the beginning of 2013?

[Ferns]

Regarding risk management, do value investors consider risk management in terms of position sizing and stop-loss like what traders do?

Or the only risk management is lies in the MOS?

For example, if I find that a particular stock has reached my adequate MOS, and I take up a position. Thereafter, it continues to drop by 5-10%, should I sell it?

I guess there's no right or wrong, but I'd like to understand the decision making process in this situation from a value investor's perspective.

If I'm caught in such a situation, I guess the first thing to do is to review how i determine my MOS?

[CityFarmer]

Regarding risk management, do value investors consider risk management in terms of position sizing and stop-loss like what traders do?

Or the only risk management is lies in the MOS?

For example, if I find that a particular stock has reached my adequate MOS, and I take up a position. Thereafter, it continues to drop by 5-10%, should I sell it?

I guess there's no right or wrong, but I'd like to understand the decision making process in this situation from a value investor's perspective.

If I'm caught in such a situation, I guess the first thing to do is to review how i determine my MOS?

You seems has all the answers, right?

[Ferns]

You seems has all the answers, right?

Not really, I'm just thinking aloud.

Asking to find some affirmation about my thought process. Hopefully, I'm slowly learning to think like a VB.