Thanks to justadrone from the yahoo MFI group, I just calculated my annualized internal rate of return. I'm still trying to figure out exactly what an IRR is. It seems to not only give the growth rate, but also to take into account the effect of cash flows - and this is the part that I'm still working on understanding. In any case, I think that the annualized IRR for my total portfolio is pretty awesome - it's just over 50%. After nearly five months, this may be long enough to start to be meaningful. On the other hand, the market has been going up like crazy since about July or so, meaning that I'm going to try not to consider this kind of return rate anything near 'normal'.
Even if I calculate my return using a method that I understand better - calculate the percent increase, divide by the number of months invested, multiply by twelve months of the year - I still get well over 30% annualized returns.
Let's see if I can keep up something even close.
I've just been reading Fooled by Randomness - so this leads me to believe that beating the market by a few percentage points is attributable to nothing other than luck. I think that occassionally reading that book, and anything else by Taleb, will be a good way to try to stay skeptical of any success.
1 comment:
Jamie, glad to see you use IRR. IRR is really the flip side of Annual Percentage Rate you pay say when you buy a house. The APR makes the Net Present Value of all your monthly mortgage payments = the amount initially loaned to you.
IRR does it in reverse... it is the annual interest rate that makes the presnt value of all your historical cash flows (purchases of stock) = the current value of your investments.
50% is very very good, though as you comment that is over a ST period.
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