Measuring Your Investment Success: How?

[Snoopy]

Greetings all. Have been doing a little navel gazing and pondering this question. For traders the answer is easy: on a day to day level at least. Determine what price you bought your share parcel. Determine what price you sold your share parcel. The difference is then your success (or otherwise). Even for traders it isn't quite that simple. Traders also need to consider the time they held those shares [a month, a year, 5 years (for the rare long term trader)]. The quicker a trader can make their money, obviously the better.

But what about the investor, who tends to acquire their shares in several tranches at different times? What if that investor all things going well inside the target investment company and looking like carrying on doing so, has no particular sell timeframe?

In my case I envisage holding a core portfolio of shares that I take particular care to select, more or less indefinitely. I may buy and sell infrequently so that the relative weightings of my portfolio do not get too far out of whack. So that means I do have to assess my sharemarket timing prowess, even though up until now I have found it somewhat meaningless to do so. So the question remains, how do I do that?

SNOOPY

[POSSUM THE CAT]

Snoopy total return over a year. Closing balance minus opening balances. Minus purchases & plus sales & dividends. I have a spreadsheet doing this all the time updated weekly.

[Snoopy]

Snoopy total return over a year. Closing balance minus opening balances. Minus purchases & plus sales & dividends. I have a spreadsheet doing this all the time updated weekly.

Good answer Possum. But what if your investment horizon is more than one year?

SNOOPY

[777]

Well year on year as possum says and measure it against fixed interest rates and market indices. A spreadsheet is great for this and the graphing function can easily be used.

[Lizard]

If you just want your returns on one specific share investment, you can put cashflows into a spreadsheet and use the IRR function to calculate a % return. I would think that if you put in monthly cashflows (negative for purchases, positive for sales), then calculate IRR you would then get a %/month return that you could compound over 12 months to give an annual return.

If you are still holding the shares, then the final cashflow figure would represent the market value of the current holding.

[winner69]

Snoopy total return over a year. Closing balance minus opening balances. Minus purchases & plus sales & dividends. I have a spreadsheet doing this all the time updated weekly.

How do you accounts for 'new' money you put into the portfolio? or withdrawals if you take some out to spend

[Snoopy]

Well year on year as possum says and measure it against fixed interest rates and market indices. A spreadsheet is great for this and the graphing function can easily be used.

I agree 777. It is good to have a sharemarket (index) and an equivalent non market (interest rate) benchmark for your investments.

SNOOPY

[OldRider]

Excel IRR works well enough for me, and would I think for most longer term holders. I use end of year, and latest week values, plus accumulated dividends, and adjusted for transactions.
Not precise for short term as present year, initial year and transactions are presumed to be for a full year. However, over a long term these become decreasingly significant.
I did use at one stage a more complex formula using the exact number of days, heaps more effort, and after two or three years, very little different.

[Snoopy]

If you just want your returns on one specific share investment, you can put cashflows into a spreadsheet and use the IRR function to calculate a % return. I would think that if you put in monthly cashflows (negative for purchases, positive for sales), then calculate IRR you would then get a %/month return that you could compound over 12 months to give an annual return.

If you are still holding the shares, then the final cashflow figure would represent the market value of the current holding.

Good suggestion Lizard, I think I will try it.

What I have been doing is I think roughly equivalent. I have worked out:

1/ The weighted average (based on purchase volumes and purchase timing) holding time. Working backwards that gives me the start of my investment period.
2/ The net amount of cash I have put in in total.
3/ The number of shares I now hold so I have an end of study period valuation.

So given my actual finishing balance and time, and the actual cash I have put in together with the calculated average start time, I can work out my return. This is the same data I have put into my share price period graphs, the latest of which I published on the TUA thread today, and I repeat here:

3082

The problem in my own mind is that I am not quite sure if this is really a good judge of my investment prowess. What should I compare this to, to see if I have done a good job on my acquisition timing? The obvious answer is the actual share price performance, compared to a my own return over that same period. But what if , in the case of TUA, I come out ahead. Yet following the actual share price it is obvious I missed out on many opportunities to make my average acquisition price much lower. Have I really done a good acquisition job?

SNOOPY

[tobo]

(No, I have not been thinking about this for 2 months)

You want to measure your success.
Yes, I can see the logic of measuring one stock against its own performance, but how do you even do that? Easiest is compare with if you bought all tranches on first buy date (=buy and hold), but that doesn't reflect reality that you didn't invest (or have) that amount the. Or, you can compare with the most amazing combination of buy-low sell-high repetitions, but that not realistc because (a) you are investing, not trading (b) 20/20 hindsight buy low sell-highs will EASILY outdo any human without a time machine.

There er two other things you can measure agaisnt.
1) how well other buy-and-hold people are doing
2) how well you are doing compared to what you would have donew (term deposits, bonds)

[voltage]

does anyone use sharesight, if so is this the best product on the market

[CJ]

does anyone use sharesight, if so is this the best product on the market
Currently using the trial version. Having only 1 or 2 shares over the 10 share trial limit, I am not sure if it is worth paying for the full version (excel is easy). If I had more shares, multiply portfolios or FIF, I would definately consider it.

Other than excel, I am not sure of any DIY alternatives.