IRR on Advanced Portfolio report

[Donald Allen]

On Mon, Jan 10, 2011 at 11:38 AM, Franco Mossotto
<franco.mossotto at gmail.com> wrote:
> Yes,
> you are right, IRR can be misinterpreted because it assumes reinvestments
> with the same return rate, but this is anyway widely used and is present on
> other products.

What Prof. Baker is pointing out is that you can be fooled by IRR
comparisons, which are dependent on the shape of the NPV v. discount
rate curves (concave v. convex). If you are comparing situations where
large costs/outgoing flows occur late in the game, it can be the case
that inferior investments have higher IRRs than superior ones. If you
don't look at the NPV/discount rate curve, you might not know this and
make an incorrect decision, by assuming blindly that a larger IRR is
always better, which is not true.

/Don


> NPV can be easily added starting from my code (we just need to add an option
> to take the rate to calculate NPV, and add the column), but I think this is
> more complex to use since it requires to think first to which is the
> expected return rate.
> Regards,
> Franco
>
>
> On Mon, Jan 10, 2011 at 4:42 PM, Donald Allen <donaldcallen at gmail.com>
> wrote:
>>
>> On Mon, Jan 10, 2011 at 3:22 AM, Franco Mossotto
>> <franco.mossotto at gmail.com> wrote:
>> > I was looking for the ability in gnucash to calculate the IRR (Internal
>> > Rate
>> > of Return) for investments. This is something that other products has
>> > and
>> > that I found essential in order to evaluate the investments in my
>> > portfolio.
>>
>> IRR is certainly useful, but can be misinterpreted. See
>>
>> http://hadm.sph.sc.edu/courses/econ/invest/invest.html
>>
>> I realize that what I've said here is a bit off-topic, but since
>> Professor Baker explains the issues very clearly, I thought I'd
>> mention it.
>>
>> /Don
>>
>> > I've found some old request to add this capability on the advanced
>> > portfolio
>> > report, but I didn't find any implementation for that.
>> >
>> > I've tried doing that by myself on 2.2.7 that is the version I'm
>> > currently
>> > using.
>> >
>> > Attached there are my scm version and the patch file for 2.2.7. It
>> > works,
>> > even if this probably doesn't comply with your coding standards (this is
>> > my
>> > first implementation using Scheme)
>> >
>> > I was trying to port it on trunk, but I've some issues with advanced
>> > portfolio shipped on 2.4.0 that I need to investigate first.
>> >
>> > Regards,
>> > Franco
>> >
>> > _______________________________________________
>> > gnucash-devel mailing list
>> > gnucash-devel at gnucash.org
>> > https://lists.gnucash.org/mailman/listinfo/gnucash-devel
>> >
>> >
>
>