2013 Portfolio Performance

[GPD]

XIRR is strongly influenced by when the cashflow i/o took place. My example in this post (#46- http://www.valuebuddies.com/thread-4322-page-4.html) showed that two persons starting off with £10k and ending up with £11k can have a wide gap in XIRR. The only difference is A cashed some out at an earlier stage than B so its investment duration is shorter than B. On an annualized basis, A's XIRR got magnified.

While my XIRR is about 26%, my portfolio gain is only about 10%.

[corydorus]

XIRR is strongly influenced by when the cashflow i/o took place. My example in this post (#46- http://www.valuebuddies.com/thread-4322-page-4.html) showed that two persons starting off with £10k and ending up with £11k can have a wide gap in XIRR. The only difference is A cashed some out at an earlier stage than B so its investment duration is shorter than B. On an annualized basis, A's XIRR got magnified.

While my XIRR is about 26%, my portfolio gain is only about 10%.

Magnified is a wrong choice of word imo. What may have happen is that you are not investing enough or too short a period of measurements. Take note XIRR is a measure of quality of your investment. (Leaving money in bank after sale is idle cash which we normally excluded.)You can include them as a CASH stock counter if you like. Theoretically should work towards 10%.

I would argue how you compute your 10% base on what capital base since you sold one much earlier then the other. Giving them both same capital base is not correct.

[smallcaps]

Hi all,

I tried to compute my XIRR as well and it does took me a while to get it right. However, the XIRR can be sensitive to the cashflow event even if end of the day two investors may ended up with the same profit. For example, two investors A and B has the same capital investment planned but A cashed out some at some point while B holds on till the end of the year. Both generated profit of $1k on the same investment. The XIRR of A is 20.6% while B is 15.5%. If B holdings is worth $11,325 at the end it will have the same XIRR as A but B's profit will be 32.5% higher.

Example
Date A B
01-Jan -1000 -1000 invested
02-Mar -2000 -2000 invested
15-May -1000 -1000 invested
18-May -1000 -1000 invested
17-Jun -5000 -5000 invested
06-Aug 3000 0 cashed out
04-Nov 3000 0 cashed out
31-Dec 5000 11000 holdings
Profit 1000 1000
XIRR 20.6% 15.5%

I not saying here that XIRR is not a good performance measure but it can be quite sensitive to when cash transactions took place (or maybe that the whole idea?) but still someone who 1% gain for a month and do nothing for the 11 months will have a XIRR of 12%. I think a single indicator can hardly tell the whole story and a few more can give a wholier picture.

My XIRR is 25.5% (based on today closing price) but return on invested money is only about 9.9%.

XIRR is strongly influenced by when the cashflow i/o took place. My example in this post (#46- http://www.valuebuddies.com/thread-4322-page-4.html) showed that two persons starting off with £10k and ending up with £11k can have a wide gap in XIRR. The only difference is A cashed some out at an earlier stage than B so its investment duration is shorter than B. On an annualized basis, A's XIRR got magnified.

While my XIRR is about 26%, my portfolio gain is only about 10%.

Yep should use portfolio XIRR instead if want to compare portfolio strategy against STI etc:

If using portfolio XIRR (with idle cash), example A becomes:

Date (Buy)/Sell CapitalInjection
01-Jan -1000 -1000
02-Mar -2000 -2000
15-May -1000 -1000
18-May -1000 -1000
17-Jun -5000 -5000
06-Aug 3000 0
04-Nov 3000 0
31-Dec 5000 11000 (5000 stock + 6000 idle cash)

XIRR 15.5%