Help with maths terminology for HYP please...

[OLTB]

Dear All

As the dividends dribble into my HYP and the first anniversary looms in the distance, I was wondering what a few of the terms mean that I have come across on these tables just to see what would be useful for commentary purposes when I post later this year:

- For instance - median - is this another word for 'average' or does it mean something else and how best to illustrate it?
- Total return and annual return - aren't they the same? Will I need to unitise the portfolio in order to do this? Many of you have recommended unitising so I will do (I think the HYPTUSS has the facility to help me with this).
- Increase in income each year - I think that I will need to wait until the HYP has been running for a few years until this becomes more accurate.
- IRR - I think Xcel can calculate this for me - is IRR best calculated on a continuous running basis or shown as separate annual returns? Aren't the IRR figures the same as the total or annual returns referred to above?

All the best, OLTB (should have paid attention in class).

[funduffer]

- For instance - median - is this another word for 'average' or does it mean something else and how best to illustrate it?
- Total return and annual return - aren't they the same? Will I need to unitise the portfolio in order to do this? Many of you have recommended unitising so I will do (I think the HYPTUSS has the facility to help me with this).

I will comment on the first 2.

Median v Average - they are different. Imagine a balanced portfolio of 11 shares, each worth £5k. Total value is 11 x £5k = £55k. The average is £55k/11 = £5k. In this case the median is the same. Now look at an unbalanced portfolio of 11 shares, worth £55k in total. Let's say the value of each share is £21k, £10k, £5k, £5k, £4k, £3k, £2k, £2k, £1k, £1k, £1k. The average is still £55k/11 = £5k, but the median is £3k. The median is the value where there are the same number of values greater than the median as there are less than the median. In this case, there are 5 shares with a value greater than £3k and 5 shares with a value less than £3k. i.e. £3k is the "middle one".

Investors may choose to use median rather than average, because with an unbalanced portfolio, it represents a more "typical" value than the average. For a balanced portfolio, it makes little difference.

TR v annual return - they are different. TR can be over any period, whereas annual return is well, err, over a year! A portfolio may have delivered 50% TR over several years as opposed to say 5% annual return. When people refer to annual return, they may sometimes mean CAGR - compound annual growth rate, over a period of years, rather than just 1 year. If the TR was 50% over say 10 years, the CAGR is 4.138%. I.e. if the portfolio had returned 4.138% each year for 10 years (without any withdrawals) then the TR over 10 years would be 50%.

Hope this helps

FD

[Breelander]

- For instance - median - is this another word for 'average' or does it mean something else and how best to illustrate it?

No, not the same thing...

The basic advantage of the median in describing data compared to the mean (often simply described as the "average") is that it is not skewed so much by extremely large or small values

https://en.wikipedia.org/wiki/Median

Excel has a MEDIAN function that helps us calculate this. https://support.office.com/en-us/articl ... 85BDD967D2

[tjh290633]

median - is this another word for 'average' or does it mean something else and how best to illustrate it?

No, if you have 25 holdings, the median is the 13th holding. The mean will be the average of all the values from 1 to 25 and can be considerably different if you have some heavy values and few below the median, for example, or vice versa.

Total return and annual return - aren't they the same? Will I need to unitise the portfolio in order to do this? Many of you have recommended unitising so I will do (I think the HYPTUSS has the facility to help me with this).

No, they are not the same, but they can have the same value. It all depends on the level of activity during the year.

Increase in income each year - I think that I will need to wait until the HYP has been running for a few years until this becomes more accurate.

That is simply what it says - the total income received in the current year divided by the total income received in the previous year, be that calendar year, tax year or a year of your own choice.

IRR - I think Xcel can calculate this for me - is IRR best calculated on a continuous running basis or shown as separate annual returns? Aren't the IRR figures the same as the total or annual returns referred to above?

Yes, the Excel function is XIRR, and requires a cash flow table with dates and inputs/outputs on the appropriate dates. You start with the value on day 1, then count inputs (i.e. cash aded) as positive values and outputs (i.e cash or dividends paid out) as negative values and finish with the current value as a negative figure at the end.

Over 12 months this will give you a figure for total return, which will be different if you withdraw dividends or allow them to stay in the portfolio. You can keep a running calculation over whichever period you wish.

Unitisation helps you to see details of your capital value and dividend per share on a basis which is not affected by cash inputs and outputs. It is worth doing this from the start.

TJH

[OLTB]

Thank you all very much for your assistance - these replies have answered my questions and time to get out the 'Excel for Dummies' book .

Cheers, OLTB.

[torata]

Before reaching for that book, have you considered another approach?

I use MS Money (free download and works on Win 10 - https://www.microsoft.com/en-us/download/details.aspx?id=20738) and would highly recommend it, even in its sunset version.

It does all the donkey work for you, and is all set up to go so no messing around setting up excel sheets. If you get fed up entering the prices by hand (I do mine 2~3 times/month) there are even workarounds to scrape prices. If you want to export data to excel you can.

torata

[OLTB]

Thanks torata - I'll certainly be looking at that after clicking the link!

Cheers, OLTB.

[GN100]

One practical comment on the Excel function XIRR and others. You need to have 'Analysis Tool Pack' installed for these functions to work - fooled me when I first tried to use them. Earlier editions of Excel didn't come with this on the standard install - maybe later version do.

https://support.office.com/en-us/articl ... 40ba1a66b4

GN

[OLTB]

Thanks GN

[Deev8]

... time to get out the 'Excel for Dummies' book

If you do want to calculate an Internal Rate of Return using Excel, here are some notes that I prepared earlier:
https://web.archive.org/web/20110711132 ... 84327.aspx

Dave

[TahiPanas]

One of the reasons I loved TMF, and now LMF, is the gentlemanly way posters help each other even when questions are asked that may have been almost exhaustively discussed in the past. This is true quality. Congratulations to all who responded above and to new posters: don't be afraid to ask anything. We were all in the same boat once!

[Dod1010]

One practical comment on the Excel function XIRR and others. You need to have 'Analysis Tool Pack' installed for these functions to work - fooled me when I first tried to use them. Earlier editions of Excel didn't come with this on the standard install - maybe later version do.

https://support.office.com/en-us/articl ... 40ba1a66b4

GN

I have Excel 2013 and it must have the 'Analysis Tool Pack' installed because XIRR, Pivot Tables and the rest all work without this pack. Anyone with Excel should just try these tools and see if it works.

Dod

[HillManMill]

Hi, I have been using HYPTUS For a couple of years but I am struggling to work out how to unitise my portfolio could anyone explain how to do this please.

[staffordian]

Hi, I have been using HYPTUS For a couple of years but I am struggling to work out how to unitise my portfolio could anyone explain how to do this please.

The LF / weebly software site set up by kiloran and itsallaguess has some unitizing information...

http://lemonfoolfinancialsoftware.weebl ... folio.html

The key point is that if you wish to backdate your unitisation, you must have access to portfolio valuations for every day you made inputs or outputs to your portfolio and ideally, on the days you received dividends.

Its far simpler to start from now.

I'd suggest looking at the linked info then coming back here or starting off a new thread with any queries.

Staffordian

[HillManMill]

Thanks Staffordian.

Had a quick read of the link. So I could unitise a IT/Share portfolio and then use that as a basis to compare with say a one [or perhaps even a portfolio] fund holding. As the aim would be to compare to a an accumulation unit fund holding I would unitise to accumulation units.

Take your point about doing it going forward.

Wondering what what might be the pros and cons of Accumulation and Income unitisations.

[OLTB]

One of the reasons I loved TMF, and now LMF, is the gentlemanly way posters help each other even when questions are asked that may have been almost exhaustively discussed in the past. This is true quality. Congratulations to all who responded above and to new posters: don't be afraid to ask anything. We were all in the same boat once!

This is THE main reason why I avidly read and ask questions on TLF (and TMF boards previously). The knowledge and assistance that strangers are prepared to offer others is fabulous and I aim to 'pass it on' in future years if my knowledge and experience may help someone in my position now.

Cheers, OLTB.

[Breelander]

Wondering what what might be the pros and cons of Accumulation and Income unitisations.

Some do both. I just use Income Units.

Income Units treat dividends as paid 'outside' the unit, either to a cash balance at your broker or 'paid away' to your bank. They are directly comparable to the standard indices: ftse100, ftse350, FTAS, etc. If you use accumulated dividends to buy more shares you are making a cash input to the portfolio (you are 'buying' more units) and is accounted for by increasing the number of Income Units.

Accumulation Units include the dividends as part of the value of a Unit. Purchasing more shares with accumulated dividends is rearranging what's already inside a unit, it doesn't change the number of units. If you pay the dividends away then you account for this by 'selling' sufficient units to realise the value of the dividend taken out. This does change the number of units. Accumulation Units are directly comparable to the Total Returns versions of the indices: ftse100-TR, etc.

As I am drawing an income from my HYP, then Income Units are the most appropriate for me. I was lucky in that I had the necessary historical portfolio valuation data. When I unitised in 2011 I could retrospectively calculate my Income Units back to 2002.

[staffordian]

Wondering what what might be the pros and cons of Accumulation and Income unitisations.

I suspect that both have their place and as Bree hints at, that place might well depend on whether you are accumulating or taking income as well as depending on how you wish to benchmark your progress.

As many people start by accumulating their portfolio then transition into spending the income, my suggestion would be to record both. It's simply a few extra columns in a spreadsheet, and once set up virtually no extra work - in my case I just record dividends received and dividends reinvested. At the moment they are the same, but in future might not be. By recording both figures I take care of the current accumulation phase, but don't need to change the spreadsheet if and when I withdraw dividends.

Staffordian