Whoops, looks like I forgot to include the list on the last reply... On Jan 4, 2008 2:12 PM, Charles Day <[EMAIL PROTECTED]> wrote:
> On Jan 4, 2008 4:42 AM, Mark Carter <[EMAIL PROTECTED]> wrote: > > > > From: Charles Day [EMAIL PROTECTED] > > > > > IRR is a really good way of measuring performance and one that I use > > all the > > > > In a previous post, I hinted that there were some a possible objection > > to using IRR. IRR assumes that you are able to obtain that rate throughout > > the whole of the peoriod. > > > > So if you bought some shares for $100 on 1 Jan, and sold them for $150 > > on 1 Jul, then the IRR is 125% (being 1.5 ^2 -1). It assumes that the > > $150 you sold your shares for can be invested at a rate of 50% per > > half-year. > > > > The reader has to understand, certainly, that IRR is an annualized measure > of past performance and - as the saying goes - "no guarantee of future > results." But that's what makes it useful for comparisons. One could argue > that the IRR figure is a better indicator than the 5% interest rate quoted > by the bank, which discards all past performance and purely forecasts the > future return. The bank could change its interest rate at any time. The only > reason that the bank figure is considered more reliable is entirely because > of the difference in risk ...but who will be the next "Northern Rock", I > wonder? > > However, I'm not too concerned with this objection - and to put a long > > story short, I feel it pretty much all comes out in the wash, anyway. Other > > methods have their problems, too. I always use IRR when working out > > performance - it's the one that makes the most sense, and I can compare the > > aggregated results against the index. I don't include dividends in my > > calculations, although one could argue that I should. > > > > > Your IRR may be 20%, which is nominally better than the 5% > > > interest that your local bank pays, but whether or not your investment > > was > > > genuinely better than a bank account depends on how much riskier that > > > investment was. > > > > I think one problem is "how do you define risk"? The way they do it in > > CAPM (Capital Asset Pricing Model) is to look at the volatility of the share > > price. I don't like that definition, though. For me, I guage my performance > > against an index (in my case, the Footsie), and figure that as long as I can > > consistently outperform it, then I'm doing well. > > > > Measuring risk seems to involve generous dollops of both art and science. > It seems like everyone has to work out their own opinion, but there are some > standard indicators around that could be downloaded and displayed to the > user (such as beta for stocks). I don't think I would use these, personally. > > > -Charles _______________________________________________ gnucash-devel mailing list [email protected] https://lists.gnucash.org/mailman/listinfo/gnucash-devel
