Introducing myself

[Charles Day]

Whoops, looks like I forgot to include the list on the last reply...

On Jan 4, 2008 2:12 PM, Charles Day <cedayiv at gmail.com> wrote:

> On Jan 4, 2008 4:42 AM, Mark Carter <mcturra2000 at yahoo.co.uk> wrote:
>
> > > From: Charles Day cedayiv at gmail.com
> >
> > > 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