IRR on Advanced Portfolio report

[Donald Allen]

On Mon, Jan 10, 2011 at 12:04 PM, Franco Mossotto
<franco.mossotto at gmail.com> wrote:
> I see your point, but what's your suggestion?
> I don't think that the actual information on Advanced Portfolio are useful
> to take a decision on the investments because there is no information
> considering the duration of the investments. And for me this is the main
> missing feature in gnucash compared to the product I was using before. Do
> you agree?

I agree that doing something in this area would be useful, but I think
gnucash can and should do better than giving people enough rope to
hang themselves, by just computing the IRR for them. Perhaps it could
present the NPV v. discount rate curve for a proposed investment (or
investments), to help people avoid the common misuse of IRR.

/Don

> Franco
>
>
>
> On Mon, Jan 10, 2011 at 5:54 PM, Donald Allen <donaldcallen at gmail.com>
> wrote:
>>
>> 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
>> >> >
>> >> >
>> >
>> >
>
>