- quote -

How Microsoft Money calculates gain, cost basis and investment performance
is a bit of a mystery. By referring to the knowledgebase links below,
hopefully it'll become a bit clearer on how these investment details are
being calculated.
Gain/Percent Gain: Microsoft KB 181754
http://support.microsoft.com/default...b;en-us;181754
Cost basis on portfolio value report: Microsoft KB 129967
http://support.microsoft.com/default...b;en-us;129967
Investment performance from internal rate of return (IRR): Microsoft KB
131664 http://support.microsoft.com/default...b;en-us;131664
How to Track Employer-Offered Stock Options (Money 95 & 97): Microsoft KB
154332 http://support.microsoft.com/default...b;en-us;154332
(c) MS Money Help & Information Pages
http://money.mvps.org/faq/article/45.aspx

- quote -

Hello Ben - thanks for asking and I will be glad to explain. The big
difference here is whether the timing of the investment is factored
into the calculation of returns. In the calculation you specified, it
is. In the calculation I am looking for, it's not.

Let's do a quick example, assume these are investment prices on the
first day of each of 3 months: M1, M2, and M3.

M1 = $10
M2 = $15
M3 = $12

If we're talking about IRR-type calculations, then the timing of cash
flows matters. Cosndier the following transaction history:

M1: Buy 1 share ( -$10)
M2: Buy 2 shares (-$30)
M3: Sell 3 shares (+$36)
Net loss: $4

Clearly the average returns here are negative... Now consider a
different transaction history, givent he same stock prices:

M1: Buy 2 share ( -$20)
M2: Buy 1 shares (-$15)
M3: Sell 3 shares (+$36)
Net gain: $1

I hope you see what I am talking about. The same investment, the same
price history, the same purchase dates and the same total holdings
amounts - but the timing had a huge impact on the returns. That may be
fine - if you're measuring your skill as a market timer, this is
exactly the type of computation you want.

However you're not always measuring your skill as a market timer -
sometimes you want to evaluate the performance of a portfolio
independant of your timing decisions. But I am after evaluating the
returns of the portfoli independant of the timing of my investments. I
hope this puts my original message into better context.

I have to run, but please let me know if this doesn't explain what I
am looking for

-e

Ed,

I don't understand the number you are looking for. In your scenario you
invested 25 total, and its currently worth $20, how, by any reasonable
calculation can you call that an average return that is a positive number?

Let me ask you this: If you invested 1 million today, and tommorrow its
worth 2 million and you hold that for 10 years and it stays at 2 million,
then 1 day before you sell its worth 0.01 cents, by your logic you would list
the as an average return of nearly 100%, as opposed to a return that is
nearly -100%?


I ask this b/c I'm trying to assess what exactly you are looking for.

"Ed Markovich" wrote:

- quote -

On Nov 24, 4:02 pm, Ben <B...[at]discussions.microsoft.com> wrote:
- quote -


Thanks, but that's not exactly what I am trying to do. See here for
the quick description of what I am after:

http://www.investopedia.com/terms/t/...eightedror.asp

More depth here:

http://www.andreassteiner.net/perfor...ighted_Returns

What you're talking about is actually Money Weighted Returns, which is
the same as IRR:

http://www.andreassteiner.net/perfor...ighted_Returns

Thanks! -Ed

- quote -

That's what I am looking for indeed, although I wouldn't call that
number my "resulting average return." Too bad, it's a useful number.

To clarify on the example:

If you bought 1 share, once a month for stock X where the price was 10,15,
and 10 in months 1,2 and 3 respectively then you would have the following
investment trail:

-10 (invested in month 1)
-15 (invested in month 2)
-10 (invested in month 3)

The current value of your portfolio is $30 (you have 3 shares valued at $10
per share - the last months price)

irr(-10,-15,-10, 30) = -7.5% per 3 month period, which annualizes to -26.79%
per year.


"Cal Learner-- MVP" wrote:

- quote -

In microsoft.public.money, Ed Markovich wrote:

- quote -

In your example, you spent $25 in the first two months for something
that is now worth $20, and you are looking for a report that your
resulting average return is 8.5%? You won't find that in Microsoft
Money.

If you go to Reports and go to Perfomance By Investment account and look at
the Annual % return - this is the number you are looking for. This is an IRR
of your investments (done daily). IRR's consider the time value of money --
this is basically the % in interest a bank would need to pay you to get the
same return.

"Ed Markovich" wrote:

- quote -

Good evening,

I am wondering if there's a way in Money (I am using 2007) to compute
time-weighted rate of return.

For quick summary - time-weighted rate is not sensitive to the timing
of deposits and withdrawals so "cost basis" is not used. Here's an
example:

Let's say you buy 1 share a month of a stock whose price is as
follows:

Start of month 1 : $10
Start of month 2 : $15
Start of month 3: $10

According to the time-weighted rate of return, your return during the
first month is 50%. Your return the second month is -33%. Your average
return for the first two months would be (50% - 33%) / 2 = 8.5%.

This might sound trivial but that's not the way most returns are
calculated. The most common calculation would say that your average
cost basis for the first 2 months is (10+15) / 2 = 12.5. The final
price is $10, so you had an average 20% loss over the first two
months.

I am oversimplifying here because time-weighted rate of return
computation should include compounding as well.

So in conclusion, I am looking for the ability to graph the returns of
my portfolio in a way that's independent of the timing of my
purchases. This would be analogous to there existing an index whose
constituents and their weights match the security selection and
proportions of the holdings of my portfolio.

I can see how I can do this myself in Excel - more or less - but it
would be great to see it done for me by Money, if possible.

Thanks! -Ed

http://ed.markovich.googlepages.com