Horizontal links

Tuesday, 24 January 2017

Can we stop using XIRR to mean annualised return?



First, the last thing I would claim would be to an England grammar vigilante.

Second, I would never dare challenge anyone on math or business finance calculations. Not when the max I can count using all my fingers and toes looking down is 21.


But XIRR?

Really?


If you have never studied business finance subjects - you've an Arts or Science background - its excusable you use XIRR as a "financial" blogger.

But if you got proper business finance training in Poly and Uni, well, what's your excuse?


XIRR is just a function in Excel to calculate internal rate of return or annualised yield for a schedule of cash flows occurring at irregular intervals.

XIRR is not a recognised business finance acronym like CARG for Compound Annual Rate Growth.


Yeah hor?

Can always say Annualised Return like what we see in Annual Reports and the Factsheets of mutual funds.

Why then we use XIRR?

If you observant, its mostly a Singaporean financial bloggers phenomenon. Overseas hobbyist financial bloggers tend not to care about "benchmarking".

See? This is how much hold big daddy has on you even on the sub-conscious level? (Yes, its always big daddy's fault!)


The answer is quite easy.

It all started with grand daddy monkey. He's the first to use XIRR in his blog.

Then some other monkey sons and monkey grandchildren follow.

Monkey see; monkey do.


Joking lah!

But it does make you think right?

I mean Annualised Return is simple enough. Why then...

Want to bet none of them work in Sales or Marketing in their day jobs?

LOL!




36 comments:

  1. When I am back , I will show the difference between CAGR and Microsoft Excel function XIRR

    ReplyDelete
    Replies
    1. CW,

      Show me what?

      People talking about Annualised Returns lah.

      Annualised Returns can be simple or compounded ;)


      And from the acronym, XIRR is clue that its a derivative from IRR ;)

      As for the difference between IRR and CARG, anyone interested can easily google themselves.


      The "humour" is why the need for all pretentions of "precision" when professionals and institutions don't communicate using XIRR ;)


      Psst. You are the first person you should convince ;)

      Your benchmarking with all the investment greats is headed with the column "CARG"... LOL!

      You are now between a rock and hard place.

      Can't change the column heading to XIRR since none of them publish any data on XIRR...

      Can switch your XIRR performance to CARG but can you swallow your pride?

      See?

      Just switch the column heading to Annualised Returns and everyone happy :)

      No need so much "precision" when none is needed.

      Delete
  2. Oops! Got poked.

    To be honest, I am not 100% sure if XIRR equal to annual returns and if it's equal to CAGR.

    I stick to XIRR because I do track all my transactions on an excel and I just use the number given. It seems much easier than using other methods like NAV.

    I do understand the weaknesses of xirr (i.e. Cash is neglected) and to some, it seems to magnify returns.

    That's why I am more concerned about the total amount of profits rather than the % returns.

    ReplyDelete
    Replies
    1. 15HWW,

      Hee hee.

      In your same post, you used XIRR, CARG, and Annualised Return all purporting to mean the "same" thing.

      Its definitely NOT the same thing. I agree fully with you!

      Choose ONE and stick with it :)


      That's the ironic humour I'm trying to flush out from you guys!

      My previous poke was too sugar-coated:

      Careful of Precision when its not needed 

      Now the gloves are off!

      LOL!

      Delete
    2. Oh!

      And when using XIRR in the PROPER way, cash available for investing is NOT excluded.

      XIRR is precise. Its just that not everyone is "skilled" in using Excel functions ;)

      Using XIRR means I as a reader, would put a higher standard on you.

      Please don't tell me you have not included your opportunity fund in the XIRR calculations ;)


      Delete
    3. Another brilliant post!

      "Using XIRR means I as a reader, would put a higher standard on you." I can relate to your frustrations!

      Delete
    4. blanc fable,

      Now that's a rarity! I appreciate it!

      Sometimes I wonder why I'm making myself the pariah of the community?

      If others want to walk around naked, let them be ;)

      Delete
  3. Hi SMOL,

    I didn't study XIrR, just that it is counter-intuitive. I feel I can manipulative it.

    Of course, after I start writing my siilyinvestor inc, I realize all figures can be massage to look good.

    Personally. I feel "return on total asset" excluding assets injection makes the most sense to me.

    Asset injection can count as the enlarged base in the following year, but should not count as "returns"

    But I belong to the minority, I happy can already. Doesn't make sense to me doesn't mean it's not brilliant, it could mean I am silly ...

    But I dun pretend to be brilliant

    ReplyDelete
    Replies
    1. Sillyinvestor,

      That's why our Hokkien street smart motto is:

      Smart can oredi; no need to act smart.


      First, there's a "proper" way to calculate returns like hedge funds or mutual funds.

      It's costly and a hassle - that's part of compliance costs mah! There's such a thing called Accounting Standards.

      Now we give excuse we are part-time hobbyist so we agar-agar guesstimate only...

      Which is perfectly OK! That's where "Annualised Return" as a broad definition is "good enough".

      But when we try to be "precision" by using XIRR, then we found out this never include, that never...

      At least the bleeding heart is smarter. He is in business development so Sales and Marketing like me.

      He only talks in hundreds of thousands!

      Now that's simplicity!

      And understanding human nature ;)

      Delete
  4. Hi SMOL,

    Ji bai siao liao. I need to go back to my excel spreadsheet and patch in all the uninvested cash portion >.<

    At least now still got the data to patch in. If it's like a few years down the road and I find out about this......good game liao.

    ReplyDelete
    Replies
    1. Unintelligent Nerd,

      Biiiii!

      Yellow card warning!

      No vulgarities please.

      Ahem.

      We got ladies at this watering-hole.

      Can use euphemisms, metaphors, or analogies. Like one female reader said don't let this watering-hole become a "sausage fest".

      See? Classy. I like.


      Next time you want to say the same thing, may I suggest "oyster siao liao" as alternative?



      Actually, it could be easier if you just stick with your current way of working and just switch to using "Annualised Return" in communication ;)

      XIRR can be troublesome if you have lots of transactions during the year and if you are not marketing your fund management services, why make life so difficult?

      Delete
    2. Wah piang. Gave me a shock since I didn't use any vulgarities.

      Translated, I meant "this time gone liao" not "oyster gone liao."

      Haiz, use wrong transliteration to represent the dialect >.<

      Delete
    3. You made me question my understanding of dialect. I google the phrase. Correct leh, not vulgarity. Phew!

      Delete
    4. Unintelligent Nerd,

      You're the one that surprised me!

      You don't look ah beng or ah seng to me...

      When poking you, I was thinking if your family background got black flag outside how?

      LOL!

      Delete
    5. Friend,

      You want to play Hokkien with me?

      Jit pai is not the same as "oyster".


      不要被我“击败”。

      要加油啊!

      Delete
  5. Hi SMOL ,
    Ops !! I am using XIRR in most of my calculating of investment return !! Anyway , as we know , all these are just a bunch " figure " by using different methods or ways of calculation ..each have their merits and demerits , pro and cons ,,at the end of the day ,our final figure counts ... be it NAV/CAGR/IRR/XIRR/MIRR/...
    “不管白猫黑猫,能捉到老鼠就是好猫”
    Cheers !! :-)
    Most important ! “恭喜发财" , "好运连连"

    ReplyDelete
    Replies
    1. STE,

      All in good fun :)

      If we can't laugh at ourselves, that means we are trying too hard!

      You are one of the more "cerebral" ones ;)


      For the benefit of others, I quote you:

      "When it comes to calculating annualized investment returns, all things are not equal and differences between calculation methods can produce striking dissimilarities over time. Also , they are many methods to calculate our returns on any investment e.g NPV , CAGR , IRR and XIRR .

      I think XIRR is a more powerful function in Excel for calculating annualized yield for a schedule of cash flows occurring at irregular periods."



      I have a suspicion 3 out of 10 financial bloggers using XIRR are using it "wrong". It has noting to do with the tool whatsoever ;)

      Just like motorcycles or cars - some just can't handle a more powerful engine ;)


      开心就好, 全家万福!

      Delete
    2. 👍👍 Just be Happy Go Lucky ,,,anyway,,WOLO,, cheers !😃😃✌️✌️🎉🎉

      Delete
  6. Hi SMOL,

    I think if we want to eat our dividends, then we should measure based on how much dividend we have per month. If we want to have a high networth, we measure how our NAV. If we want to measure long term returns on investing, XIRR is the proper way to do it. I guess different metric for different purposes?

    Mine is simple. 240k @ 5% or more. I measure how much work I need to save 240k, and then overall portfolio dividends must be more than 5% pa. Lastly, on average, each individual trade should be more than 5% potential before I go in.

    Once I hit that benchmark, I'll change my 'KPI' again.

    ReplyDelete
    Replies
    1. Leisure25 January 2017 at 13:02
      LP,

      You've hit the nail on its head!

      We should MEASURE what we DESIRE to ACHIEVE!


      I don't think most of us are seeking to have the best % performance returning blogger in town...

      Unless we are into selling courses, newsletters subscriptions, or fund management services ;)


      I wouldn't go so far as to say XIRR is the "proper" way. If that were so, many money management firms can lower their compliance costs!

      The "acceptable" way for measuring performance approved by the taxman and auditors is using the "price per unit" way employed by mutual and hedge funds.

      I would prefer to say as hobbyist bloggers, we are "settling" for XIRR - that's provided we know how to use it proper! LOL!


      I like your style of goal setting!

      It shows you are not a monkey see; monkey do ;)

      People forget we should "own" our KPIs.

      That's why land owners and shepherds throw their KPIs at sheep.

      KPIs should serve us; not the other way round ;)

      Delete
  7. Whatever you like to use, at the end of the day how much assets to generate cash for your daily living expenses counts; nothing so much the matters.

    You know i use Microsoft Money and i cheat by having a virtual bank account that is so large to track my stock investments.

    Another words i have a fixed amount of cash for investing that never will go negative.

    So what's this you can call?

    XIRR, CAGR, or what?

    i just want to have a stable amount for tracking all my cash flow for investing.

    Anything above the original starting stable virtual amount is the absolute amount of money i make.

    And vice versa.

    Tio boh?

    ReplyDelete
    Replies
    1. temperament,

      Life is so simple for not much study people like me.

      1) I just count how much cash plus the value of my portfolio I have beginning of year X.


      2) Add in new cash injections, if any, during the year.


      3) Add the total amount of money made or lost - both realised and unrealised (mark-to-market accounting mah) end of year X.


      4) Wah lah!


      What's so difficult that without XIRR cannot compute?


      If I start year X with $1, add $0.50 during the year, and ended year X with $1.30, I wouldn't go round telling everyone I "made" 30% and beaten all the gurus out there!

      LOL!


      I see your way works for you too!

      You measure Cash Flow. That means in dollars and cents like me :)

      We buy things with $; not %



      P.S. I've noticed one ego pattern exhibited by financial bloggers. If returns or dividends more than $100K, share in dollars and cents.

      Those that share in percentages meant their returns/income in money terms less than $100K ;)

      Human nature.

      Delete
  8. SMOL, you really know how to poke. Actually because XIRR is a function in EXCEL it is much easier to use and learn by mortal. Is actually a annualized (compounded).

    People who has astronomical return or losses are due to short time frame in investment period measured on a single stock with the result amplified multiple times to annual length period. So technically the figure is truth.

    I will SWEAR by it that XIRR is the BEST !! LOL

    ReplyDelete
    Replies
    1. Cory,

      Hee hee. I promise this will be my last poke for the year of the Monkey!


      Eh, I may want to "dispute" your position that XIRR is easy to use and learn ;)

      If so, how you explain we have financial bloggers using XIRR in the "wrong" way - especially when it comes to "forgetting" to include cash in opportunity fund into the equation?

      The problem is not XIRR or math. It's definition of what is an Opportunity Fund?

      And then we open a whole can of worms... LOL!


      Like what you've said, XIRR is just one tool to calculate Annualised Returns.

      You guys funny. Instead of saying my "Annualised Return", if you prefer to say "XIRR", hey! Whatever makes you happy!

      Who knows? Maybe one day the whole English speaking world will copy Singapore and switch to XIRR when they meant Annualised Returns too ;)

      Like we say "Xerox" to mean photocopy?


      P.S. Why don't you use XIRR in your corporate presentations in Taiwan? Spread the Singapore love for us over there?

      Make us proud!

      Delete
    2. I need to get them to invest first .... many of them only know FD, Structured Deposits or Insurance .... then we talk XIRR ops ... Annualized Returns ...

      Delete
    3. Cory,

      Yes, as Chinese descent, our DNA are the same - its property first when we think "investment" ;)

      No property; no marriage!

      LOL!

      Delete
  9. Hi SMOL, I dunno much about XIRR as I obviously do not use it. I much prefer the way hedge funds keep score in terms of investment performance. Hedge funds are the most transparent when it comes to investment performance. Every dollar given to them are supposed to be utilized for generating returns and so additional cash inflow can either be a blessing or a curse depending on whether the additional cash inflow can be deployed successfully to generate returns or else if left idle will simply be dragging on performance.

    ReplyDelete
    Replies
    1. Macroanalyst,

      Of course you (and Smart Beta) won't have anything to do with XIRR! LOL!

      You are not retail hobbyist blogger ;)


      I myself don't use XIRR either - not because I am pro like you guys - no, its because I don't need to pretend to have better "precision" when none is needed.

      I'll stick with primary school math :)

      And no decimal places! Ha ha!


      Thanks for sharing your input from the professional side of the pond ;)




      Delete
    2. I did not start off as a pro so I know that good habits should start even as a retail hobbyist blogger ;)

      Delete
    3. Macroanalyst,

      Wow! That's 7 Habits of Highly Effective People for you ;)

      Right off the bat you didn't "settle" for XIRR...

      Respect.

      Delete
  10. simi XIRR?
    you talking about XXX isit?

    i mean the movie...
    xander cage...
    not ahem..

    hmm... i thgt is just"final value minus initial value"?
    thats what my maths cher teach me in primary school.

    ReplyDelete
    Replies
    1. foolish chameleon,

      LOL!

      Another person who does not use XIRR ;)

      Use primary school math some more!

      It seems we are not so alone after all...


      The genius of Steve Jobs is he kept the science and engineering "hidden" from the consumers.

      What the customer see is a simple, personal, and intuitive product - Annualised Returns.

      Apple's competitors products - XIRR.



      Delete
    2. i dont use, coz i dont know how to use leh..
      if money in (sell) is > money out (buy)then profit lo. vice versa.
      it includes all the cost ie brokerage, gst etc etc. so i just look at my statement.
      easy peasy japanese-y
      in my case, could be oversimplified.

      to each his own.
      nothing is set in stone.

      anw, year of of the cock is cmg soon.
      everyone HUAT AH!

      Delete
    3. foolish chameleon,

      Continue to stay "foolish". Walk your own path, and have fun!

      Delete
  11. Yo yo SmOl,

    Wishing u a happy CNY

    ReplyDelete

Related Posts Plugin for WordPress, Blogger...