zxc100 wrote:I have read many posts here over the last 1-2 years with interest. HYP comes close to how I invest but this has been a process evolving over several decades and i do wish I had had access to resources such as TMF or Lemonfool in earlier years. It has been at times an expensive education.
I recently set out to calculate XIRR having read of it here. I calculated back to April 02 as I felt my portfolio had started to reach a reasonable size then. Prior to that I had data but decreasingly relevent due to time and portfolio size. I was disappointed to have achieved only 6.3% CAGR. Clearly starting point has a huge impact and I had some large losses in 08 09. This makes a point that I have learnt well. Avoid big losses! If you lose 33% in one year even a 40% gain the next year gives you a 2 year loss of 6%. If I had only taken from April 09 ky CAGR would be 14.3%.
I do not use the income and while still at work am focused on total return but work with the knowledge that most return is likely to be from dividends. I would like to ask why so many of you unitise? Surely the only thing that matters is the level of your income and how much it changes or in my case the annual change in value? Perhaps you enjoy the exercise?
I hope some of you might give me your (brief) thoughts.
Best wishes
Zxc
First, don't be disappointed, here are, for example, the total returns for FTAS from various year ends, as you can see you were in good company, look at from end 2001.(Sorry about the look of the table, my first attempt on this site).
FTSE ALLSHARE TOTAL RETURN FROM VARIOUS YEAR ENDS
As to why some of us unitise, simple (but bear in mind that one can get by without perfectly well too and there is also a range of simple measures which can tell you broadly how one is doing): Adding and subtracting cash from a portfolio can mask and distort key performance measurements. Once properly set up, unitisation just gets calculated as you enter normal portfolio activity(divis, cash movements...) in your system, so, imho, is not any kind of hassle after the initial effort. I have not changed my system for years, never lift a finger beyond typing in basic portfolio activity data ONCE, and out it pops, accurately calculated but summarised alongside all sorts of other stuff as I want it on a rolling basis.
Unitising allows you to measure yourself against the index of your choice(which ideally seeks to reflect the composition of your portfolio). For income units use the plain version of such index, for accumulation units use the total return version. Because I invest beyond the ftse350 in my HY portfolio, I have chosen to use FTAS TR, hence I had the data above to hand. Many 'unitisers' calculate both inc and acc units because that too is easy to set up while you are at it and the byproducts are complementary.
For HY investors, such a key measure would be how the underlying dividends have progressed, which can be massively masked by cash flowing into the portfolio and the process of re investing divis. To calculate this you would need to use income units first, then calculate divis per income unit, preferably (but not essential)cumulated 'on the nail' and see how they are progressing (although it can be done from accumulation units but a correction needs to be applied in that case as there is an element of double counting there).
You are interested in TR, so accumulation units might be your choice. As your portfolio ages, your portfolio IRR, which you are familiar with, from those far away dates will converge very near with the rate at which accumulation units have compounded over the same period(I was comparing such data with another very experienced investor off board very recently and for both of us, beyond around ten years plus the difference was negligible in term of the performance message it sends back to the investor) . I use this comparison as one of many cross checks for data integrity. Ignore this comparison in the early years of a portfolio, when cash injections are still a large proportion of your portfolio, or if there are very large cash movements.
Hope this helps to give you a flavour, I have played with this lot since around 1982, having been introduced to it by an investment manager making a presentation to our then investment club as part of their corporate community effort, but yes you have to enjoy doing this kind of thing.
Ozyu
PS Nice posts Arb. I don't believe in recs, but have some virtual ones anyway!