tag:blogger.com,1999:blog-9212230152177138609.post5129485908393480972..comments2024-03-25T15:15:18.172+08:00Comments on Bursa Dummy: How To Calculate Portfolio Return?Bursa Dummyhttp://www.blogger.com/profile/02242116696140987141noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-9212230152177138609.post-17952766234696836662015-03-03T13:46:48.347+08:002015-03-03T13:46:48.347+08:00Thanks NOBY. It's ok if excess cash is include...Thanks NOBY. It's ok if excess cash is included in calculation, as it can show how well we utilize our cash on hands. <br /><br />Anyway, I'll stick to my own way of calculation :)Bursa Dummyhttps://www.blogger.com/profile/02242116696140987141noreply@blogger.comtag:blogger.com,1999:blog-9212230152177138609.post-61787423221257375022015-02-28T23:06:29.063+08:002015-02-28T23:06:29.063+08:00I found this formula to be simple and useful but i...I found this formula to be simple and useful but it will include the excess cash in the portfolio returns calculation<br /><br />http://www.oldschoolvalue.com/blog/investment-tools/calculate-xirr-annualized-returns/Nicholas Ohhttps://www.blogger.com/profile/02501287458640456579noreply@blogger.comtag:blogger.com,1999:blog-9212230152177138609.post-43407301682231108592014-08-30T18:02:13.816+08:002014-08-30T18:02:13.816+08:00Thanks JY, I think I get what u mean. Anyway, I wo...Thanks JY, I think I get what u mean. Anyway, I wonder how do others calculate investment return.Bursa Dummyhttps://www.blogger.com/profile/02242116696140987141noreply@blogger.comtag:blogger.com,1999:blog-9212230152177138609.post-62877099175064280012014-08-29T17:49:43.628+08:002014-08-29T17:49:43.628+08:00Hi BD
I used 12 monthly "approximate return&...Hi BD<br /><br />I used 12 monthly "approximate return" to generate a more accurate 1 year return. Now you are zooming into detail for 1 month return. Haha If you want an accurate 1 month % return, then we'll have to use 30 days daily return to compute the 1 month return, just like how the bank did it when they calculate monthly interests considering you make deposits and withdrawals everyday.<br /><br />The theory is simple. The % return is to measure your performance relative to the profit generated. Let's put aside the months and years aside for now. Let's say you made RM5000, using capital of RM10,000. The % profit is 50%, simple. If you add additional Rm5000 capital but didn't make any trades, your return (or performance) is still 50% and profit of RM5000.<br /><br />The 50% mark is important especially in fund management industry because they cannot afford to let new investors who come in especially later of the year to pull down their one year performance in terms of %. Let's say... a unit trust has an initial capital of RM100m. They made 50% for the year or RM50m. Suddenly a tycoon decided to invest RM1b into the fund, pushing the ending fund value to RM1.150b. If we use your approximation method, the annual return would be:<br />1150m - 0.5(+1000m) / 100m + 0.5(+1000m) - 1<br />= 8.3%<br /><br />This will be very unfair to the fund managers because their performance is affected by the mathematical computation of deposits and withdrawals made during the year, and not by the performance in the market.<br /><br />Similarly if the fund didn't make any profit until the RM1b came in, and they made RM50m from investing only Rm100m in a stock (leaving the RM1b untouched), their return for that trade is 50% but as a portfolio the return is only 4.5%.JYhttps://www.blogger.com/profile/12448698021846720114noreply@blogger.comtag:blogger.com,1999:blog-9212230152177138609.post-48171278939860653122014-08-29T14:25:39.096+08:002014-08-29T14:25:39.096+08:00JY, Thanks for your feedback. I need quite some ti...JY, Thanks for your feedback. I need quite some time to digest it :)<br /><br />It seems like the "adjusted opening amount" does not factor in time factor.<br /><br />Actually I still think the approximation equation is more accurate at this moment. It does take in the time factor but it assumes its average.<br /><br />For example, if I have RM10,000 on 1st Jan, then invest another RM5,000 on 15th Jan, and my end value on 31st Jan is RM20,000. <br /><br />If according to the formula you mention, monthly return will be <br /><br />[20,000 / 15,000] - 1 = 33%<br /><br />Am I calculate the "adjusted opening amount" correctly?<br /><br />If using the approximation method, monthly return will be:<br /><br />[20,000 - 2,500] / [10,000 + 2,500] - 1 = 40%<br /><br />The closer the additional investment made to the middle of the month (15th Jan) & the lesser the additional amount is, the more accurate it is.<br /><br />According to approximation method, our end value in this case will not be RM20,000 if we add in further investment in the month.<br /><br />Lets say if we add in another RM30,000 on 30th Jan, and our portfolio value reach RM50,000 on 31st Jan, it is unfair to put our end value as RM50,000, or beginning value at RM45,000. <br /><br />Using the approx method, our end value in this case will be RM32,500, and beginning value RM27,500.<br /><br />Though this will not be a true reflection as the additional RM30,000 is too large an amount and it's made towards the very end of month.<br /><br />However, it is still better than not using approx method.<br /><br />Just my 2 cents.<br /><br /><br /><br />Bursa Dummyhttps://www.blogger.com/profile/02242116696140987141noreply@blogger.comtag:blogger.com,1999:blog-9212230152177138609.post-85795773929840088832014-08-28T16:53:13.096+08:002014-08-28T16:53:13.096+08:00Hi BD
I also encounter the same problem (calculat...Hi BD<br /><br />I also encounter the same problem (calculating return) few months back. This is what I found from some books and the web.<br /><br />There are 2 methods: Money weighted method (basically same as calculating implied IRR) and Time weighted method.<br /><br />I personally use time weighted method.<br /><br />For instance, if I made 10% return each year for 3 years, then my total return is 33.1%. (1.10 x 1.10 x 1.10) minus 1.<br /><br />If I make 1% each year for 12 years, then my return would be 12.68% p.a. To calculate annual return, just replace 12 years to 12 months... hence we calculate monthly return and multiply them to get 1 year annual return.<br /><br />Return is calculated by (Ending Amount / Opening Amount) - 1<br /><br />Hence with cash flow movements, the monthly return can be calculated by [Ending Amount / (Adjusted opening amount)] - 1, whereby adjusted opening amount is the new amount after adjusted for the cash flow movement.<br /><br />For your Mr Y case, since he put money in December, (note that "time" matters in this calculation), it's important to know when did he make the RM5k profit. Before or after he put the new money. If money is made before the new capital comes in, the annual return would be 50% (because he did make 50% from his RM10k, while the RM5k gain nothing). If the profit comes in after the new capital, then the return is 33.33%. Imagine the Rm5k new capital comes from Mr Y's business partner (let's call him MR Z). He'd definitely ask for 1/3 sharing for any profit made after he has invested his money regardless if Mr Z money was used or not.JYhttps://www.blogger.com/profile/12448698021846720114noreply@blogger.comtag:blogger.com,1999:blog-9212230152177138609.post-29357422497264897472014-08-19T09:32:06.212+08:002014-08-19T09:32:06.212+08:00Thanks, will take a look definitely.Thanks, will take a look definitely.Bursa Dummyhttps://www.blogger.com/profile/02242116696140987141noreply@blogger.comtag:blogger.com,1999:blog-9212230152177138609.post-71899820512749134342014-08-15T20:47:06.041+08:002014-08-15T20:47:06.041+08:00Hi BD, below link is about how to calculate the re...Hi BD, below link is about how to calculate the return by using excel. Simple and easy.<br /><br />http://www.gurufocus.com/news/108618/how-to-calculate-your-investment-returns-using-excelMhttps://www.blogger.com/profile/13734854812174156928noreply@blogger.com