PATCH: Advanced portfolio report revisions
Mike or Penny Novack
stepbystepfarm at mtdata.com
Sun Dec 9 08:35:25 EST 2007
>We believe, but we are not sure, that the Microsoft-Money "Annual % Return" is the Internal Rate of Return (IRR). See http://support.microsoft.com/kb/131664. We believe that the IRR is the "best" measure of return, because it allows any two investments to be meaningfully compared.. The calculation is non-trivial. I recommend "Financial Calculation Programs for Linux" by James Shapiro at http://www.linuxjournal.com/article/2545. He gives C, Java, and Perl programs for calculating IRR.
Close. But just IRR by itself without including its standard deviation
for the time period doesn't allow proper comparison of investments. Not
that past measures of "risk" provide a certain measure for the future
but it's the best that is available. The point here is that investment A
with an IRR of M but a large deviation might not be a better than
investment B with an IRR of N slightly smaller than M but with a much
smaller deviation. The usual idea is that the real comparison gets made
after adjusting for risk -- how much of the higher yielding would
instead have to be invested at low yield very low risk to bring the
blend to the same deviation -- and then use that blended yield.
The problem is that the deviation can't be simply calculated from the
beginning and ending states but needs the history in between.
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