Tuesday, 2 August 2011

Portfolio Performance

Since yesterday night, I been trying to redo my excel file to calculate XIRR. Thanks to guidance from Cory, LP and CW in cbox I managed to complete the XIRR for both my accounts with the start date of 13th May 2011.  (I do not have detailed data before this.)


 It can be easily seen that the XIRR values vary a lot with or without considering investible cash as part of the equation.

Basically there are two schools of thoughts
  1. Equity 
  2. Equity + investible cash
For method 1, we should only consider pure equity return to measure the performance and cash should not be included as cash is subjective.

For method 2, we should only consider investible cash as part of the equation as one constantly input funds from one earned income into investible fund. This measure if one has effectively made full use of the investible cash available.

Personally I think both methods are good, it all depends on the objective of the measurement.

If one wants to measure how well the performance of its equity is as benchmark against something, such as STI index, method 1 is good.

If one wants to measure how well one has effectively use the investible cash for investing, method 2 is good.

Of course, besides the 2 method above, the most simple method of absolute and % growth of the entire portfolio should also form part of the equation too. My definition of entire portfolio = all cash + all investments,  exclude CPF and the flat which you currently live in.

7 comments:

Createwealth8888 said...

Whatever method you use, you must see a long term up trend when you plot this value on a line graph; then you will know that you have good investing strategies and likely to reach your final investing goals.

Singapore Man Of Leisure said...

It's good to remember why we want to invest in stocks in the first place. Sometimes people forget this...

Looking the your Portfolio 1 and 2 and its XIRR returns, I can infer some interesting observations. But its best you realise them yourselves.

KPIs are meant to help us "navigate". The captain has to decide whether to change course, where needed :)

OT83 said...

Hi Uncle,

I think i need to strive to get the xirr trend up for long term.

Hi SMOL,

What can you infer? What I can infer is by not investing the cash I got, I am actually preventing myself to suffer more loss in bear for my account. However, this is different for my joint account. By not investing the cash, I earn less.

Mind enlighting me by sharing what you infer?

Thanks

Singapore Man Of Leisure said...

Your joint account has better equity returns:

1) Either it's better stock picking and price entry skills (apply the lessons to personal portfolio?)

2) Or pure luck. Then it's back to reflection and basics on developing your own "Method". I like the 3 Ms - Mind, Money, Method.

3) Your 2 accounts are a good illustration that we don't have to be fully invested all the time.

An account that's mainly cash can still outperform a losing account: + 4% is not so bad versus - 17%.

3) LP has already spoken to you on it. It's your willingness to limit your losses. From your personal portfolio. I infer you are waiting to break even then sell? This strategy have one drawback - our portfolio will look depressing while "waiting".

Do not underestimate "morale" when it comes looking or tracking our portfolio returns.

OT83 said...

Hi SMOL,

The negative account is due to poor risk management. I made a stupid mistake twice, I hope will not make it the third time.

Morale is important, it really felt depressing to see negative account everyday, see how long i cannot take it.

Thanks for the advice.

Cory said...

OT, I like the way you explain the concept clearly.

Just want to add that Growth of the entire portfolio (Networth) is most important as it measures overall return which will includes striking ToTo, Salary Increase, inheritances etc. ^^

OT83 said...

Hi Cory,

Actually I have another calculation which I never clearly explain.

Basically, I compare how much I have in total on 1st Jan and 31th Dec, see how I grow each year from various sources like what you said, toto salary increase etc.

That gave me an idea of how well I did overall each year.

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