Got a question for the Fools here.Okay, I've set up a spreadsheet to track how our 401k investments are doing since the beginning of the year.For each fund, I set up a spreadsheet. I set up a column listing each month end balance, a column tracking contributions for each month, then a column to list the balance less the contributions for each month.Now, I'm thinking that if I take the ending balance at say 9/30/04 and subtract the ytd contributions, I should arrive at what the balance would be without contributions. Doing this, yields negative return, yet Yahoo Finance says the fund has had positive return ytd.So, what am I doing wrong?TIA3MM
Welcome to the world of financial modelling.Its easiest to work out the formulas for your spreadsheet with a bond fund. They usually pay a fixed dividend per share each month. Then you can easily work out what your account balance is in terms of number of shares and what its value is. Then you can back calculate what your rate of return is for your own purposes.In order to mimic the return figures published on say Yahoo, you should take the value of one share on Jan 1, add all of the distributions for the period, and then compare that with the value per share in the end to get an investment experience value. That should mimic the Yahoo value, except that sometimes Yahoo numbers do not include expense ratio, 12b1 fees, loads, etc, that get charged to real investors, but are excluded for comparison purposes.Note that the Yahoo chart numbers are per share numbers and ignore the effects of distributions, each of which reduces NAV, but usually results in more shares for investors who reinvest their distributions.Hence, it will be almost impossible to exactly reproduce the numbers that Yahoo gets in your account--especially if you are constantly adding new money. Those funds get invested over the year at a variety of share prices and hence will differ due to price variations from the official fund return figures.The numbers you generate in your spreadsheet are only a guide. Obviously they are the most important numbers, because plenty of companies publish gains that never make it into your account somehow. You want to keep an eye out for investments that perform as expected.Fool on!! You are definitely asking the right questions. Keep at it.
You are not necessarily doing anything wrong, except if you have not taken into account distributions. Yahoo may not be correct. You can bring up the fund's page on Yahoo, click on Historical Prices, and see if their data agrees with yours.For funds, Fasttrack gives the cleanest data I have seen, but it is not free.
You can use the spreadsheet that I developed to track the time-weighted rate of return. I talk about it here:http://boards.fool.com/Message.asp?mid=20157964Put contributions as positive cash flows and withdrawals as negative cash flows.
thanks for the replies.I'm not taking any distributions. So, I'm thinking that if the ending balance isn't more than the beginning balance plus contributions, the fund is losing.I've just been tracking the balances as they went up and was pretty happy. But, now that I realize the only upward movement was from our contributions, not so much :)thanks again3MM
Man, that sucks! I remember reading another post where the fixed income fund in someone's 401k had so many fees that it lost money! I mean, really, a fixed income that loses money?!?! And, I'm pretty sure it wasn't a bond fund losing money due to interest rate changes. You're definitely doing the right thing by looking into this.good luck!Hedge
Author: 3muttsmom | Date: 10/2/04 5:15 PM | Number: 42554 I'm not taking any distributions. So, I'm thinking that if the ending balance isn't more than the beginning balance plus contributions, the fund is losing.I've just been tracking the balances as they went up and was pretty happy. But, now that I realize the only upward movement was from our contributions, not so much :)Well, one big consolation is that you've been buying more shares for the same amount of money each time as the share price has gone down down. That's the whole reason for dollar cost averaging.So, just keep doing what you're doing, and you'll be ready for that big move up! Then your gains will be very nice.Russ
Well, one big consolation is that you've been buying more shares for the same amount of money each time as the share price has gone down down. That's the whole reason for dollar cost averaging.Good point. Warren Buffett talked about this. “Investors who expect to be ongoing buyers of investments throughout their lifetimes should adopt a similar attitude toward market fluctuations; instead many illogically become euphoric when stock prices rise and unhappy when they fall. They show no such confusion in their reaction to food prices: Knowing they are forever going to be buyers of food, they welcome falling prices and deplore price increases. (It's the seller of food who doesn't like declining prices.) Similarly, at the Buffalo News we would cheer lower prices for newsprint - even though it would mean marking down the value of the large inventory of newsprint we always keep on hand - because we know we are going to be perpetually buying the product. Identical reasoning guides our thinking about Berkshire's investments. We will be buying businesses - or small parts of businesses, called stocks - year in, year out as long as I live (and longer, if Berkshire's directors attend the seances I have scheduled). Given these intentions, declining prices for businesses benefit us, and rising prices hurt us.”1990 Letter to Berkshire Hathaway shareholdershttp://www.berkshirehathaway.com/letters/1990.html
Well, that makes me glad I am not a follower of Buffett. That is just plain stupid. He may have been able to find value in bad times, but mutual funds do not have that kind of record. And Buffett has not done well holding Coke over the last 5 years, although it could have been traded for a few profits here and there. Dollar cost averaging, particularly to an index fund or any mutual fund I know of other than perhaps HSGFX, is a recipe for long periods of bad returns. Dollar cost averaging VFINX gave terrible results the last time I did the calculations.But it is easier than actually doing it right, and a great comfort to the lazy.There are many people who believe that we are in a long-term bear market. I do not know if they are right or not, and I think long-term predictions are fundamentally silly, but I do know that if they are right, the people who dollar cost average into an index fund will find it very difficult to retire.It is much better to trade with intelligence and with an eye to the direction of the market. But of course it is more work, and many people do not like work.
Dollar cost averaging, particularly to an index fund or any mutual fund I know of other than perhaps HSGFX, is a recipe for long periods of bad returns. Dollar cost averaging VFINX gave terrible results the last time I did the calculations.Disagree.
Well, that makes me glad I am not a follower of Buffett. That is just plain stupid.He's arguably the greatest investor of all time. I don't know why you are so critical of Buffett. I would be *very* surprised if your own investment results were anything close to Buffett's.Your arguments don't have any substance. Show me why Buffett's philosophy doesn't work. Of course it will be impossible, because his philosophy is tremendously effective. The *only* way you can possibly make the argument is by distorting his philosophy into something it's not.Dollar cost averaging VFINX gave terrible results the last time I did the calculations.Over what period of time? You are making foolish blanket generalizations.
Dollar cost averaging VFINX gave terrible results the last time I did the calculations.I would love to hear what you have to say in response to this:http://boards.fool.com/Message.asp?mid=21352152
In your example, there are times when it would have been much better to be in cash. In your example, a decent market timer would have known, in general, when to be in cash and when to be in the market. Without those losses, he would have done much better. In your example, you have a loss for the first 5 years. If that satisfies you, fine. It would not satisfy me. I am focused on making money.About a year ago, I looked at a 5 year period of dollar cost averaging into VFINX on a monthly basis, and the results were negative. Possibly doing it for the last 5 years from now you would have a positive result. That is not the point. Five years is a long time to have a loss. In any case, your example is not what I would call a good record. In addition, there is no reason to believe that the next 40 years will provide anything like those returns. They might be better or worse. Just blindly assuming that they will be the same or better does not yield an investing strategy worth following.I do think, of course, that putting money into a retirement account on a regular basis is a good thing. I just do not believe that it should just go into an index fund or some other similar thing.At this time, the market looks pretty good. I have no idea how long that will last. My only goal is to make the best of the good times and to get out with some profit before things get bad, if/when that happens.
In your example, there are times when it would have been much better to be in cash.Of course. This is obvious. However, over the long run, most active investors trail the market after considering transaction costs and taxes. Frequent traders as a group trail the market even more because of their higher transaction costs and higher taxes from short-term capital gains rates. That's the reality.Of course it would be better if you happen to be able to take effective action to improve your investment results relative to the market. The problem is that few people are able to do this. Unfortunately, almost everyone *thinks* they are above-average investors (which is obviously impossible), just like most drivers think they are above average drivers.The point of my post with the dollar-cost averaging was that you can get a very satisfactory result from doing it over the long run. Of course there will be certain individuals who will achieve long-term returns greater than the market averages, but these people are actually very rare.Five years is a long time to have a loss.Why would you care if your investment horizon is 20 years, for example?In any case, your example is not what I would call a good record.This is an extreme example where the market dropped precipitously in the beginning. I think it is a very good record, especially if you compared it to the people who were scared out of the market and missed its recovery.Joel, getting back to Buffett, you are extremely critical of an investment philosophy that you obviously know very little about, which I find remarkable considering how incredibly successful Buffett has been in applying it. I would think that you would be curious as to how someone could achieve such stunning results over a 50-year time period.Do you mind sharing your long-term investment results with us? I'm a big believer in measuring investment performance. I think most active investors would be very humbled if they knew their true long-term portfolio rates of return, but the reality is that few investors actually calculate their rates of return.
My criticism of Buffett was primarily directed to the dollar cost averaging. It is also obvious the Coke has been dead money for the last 5 years, and I think there must have been better opportunities.So far as my long term record is concerned, it is virtually impossible to tell. When I started at MITRE in 1974, a certain percentage of my salary went into the retirement plan every pay day, which at one point was every other week, at another point was every week, and at yet another point was twice monthly. Even if I had those records, reconstructing what I have done would be way too time consuming.Besides, I was not a very sophisticated investor at that time. For one thing, personal computers did not exist. Nobody could just pull up a chart. They had to be drawn by hand. I am quite sure I made a number of big mistakes, but it was difficult to get good information.The crash of October 1987 cost me a bunch of money. It convinced me that I needed a better way of assessing the market, and that I should re-evaluate the market on a daily basis. On the Friday before Black Monday, I was out doing a bunch of stuff, and never looked at the market. Friday was a warning, but I missed it. Even at that time, I had sense enough to know that I should have gotten out that Friday. I went home and kicked myself. Oh well.At some point I bought Fasttrack and began to study technical analysis. I traded mutual funds actively, and was quite successful with a collection of heuristic techniques. The PRISM method, first posted by Roy Merwin on the Fasttrack listserv, and which I describe on my site, is quite powerful.I left MITRE in 1996 when the company lost the NASA contract. I officially retired and went to work doing the same thing I had done for MITRE, but with a different company. I still did not have good market timing techniques. I transferred the MITRE retirement accounts to an IRA and continued to trade mutual funds. I also traded stocks using the CANSLIM method. That was quite successful, but there are a lot of extremely subjective factors in that method, and it is a lot of trouble. I certainly beat the S&P during that period.I also tried VectorVest, but with mixed results. On the other hand, it was a very volatile period of the market.At some point I bought FastBreak. It gives a systematic, mechanical method of trading. I use common sense as well. At this point I have a number of decent market timing algorithms, most of which are published on my site. They are written in Trade code, but could be converted to something else. I use a consensus of those systems.I published a trading journal during the 1999 - 2001 period, but it was a lot of work to keep up. I have severe back problems, and sometimes just sitting down for long enough to write the journal leaves me in some pain. I did OK, and I did have the sense to get out in mid-March of 2000. I am publishing a journal now (since September 2003), and will keep it up for as long as I can. I am back to tradng stocks, since the timing police will ban you from many mutual funds even if you hold for 60 days, and I lost some money earlier this year by holding on too long just because I was worried about that.In 2003 I made about 30%, which is not very good. I traded a mix of bond and stock funds, whereas I should have been more aggressive and traded stock funds only. I had a hard time believing that the rally beginning in March was real. If I had been more objective, and believed the charts, I would have made more money.There is more stuff in the introduction on my site.
Joel:It is much better to trade with intelligence and with an eye to the direction of the market. But of course it is more work, and many people do not like work. Also, this is not allowed in my 401(k). Funds are the only option. And, I can only trade in and out of them every 14 days.3MM
14 days is not so bad, but do you mean that you can only trade on certain days, or that you have to hold for 14 days? The latter is fine, but trading only on certain days is a bummer.
No, I believe it means I have to hold for 14 days. Unfortunately, most of our funds are proprietary.Macapitalist,I downloaded your spreadsheet - thanks for that.However, I'm having a hard time figuring out the formulas. I guess I'm not approaching the calculations correctly. I looked at the 2002 numbers and taking the end balance less contributions/distributions throughout the year less the beginning balance, I come up with 25.97%.What am I doing wrong? I'm a CPA, so not mathmatically challenged or anything! :)I see your formula takes the product of each period and subtracts 1. However your original post states that annualizing interim periods is misleading, so just looking at 12/31/01 vs. 12/31/02 would seem to make sense. However, like I said, the result is lower.thanks for your help. More finance classes in addition to the accounting classes would probably have helped! LOLCan you point me to a book that shows how to do these calculations correctly?thanks again3MMstill learning.
However, I'm having a hard time figuring out the formulas. I guess I'm not approaching the calculations correctly. I looked at the 2002 numbers and taking the end balance less contributions/distributions throughout the year less the beginning balance, I come up with 25.97%.It sounds like you understand the basic concept. We are basically trying to determine the change in portfolio value separate from additions to or withdrawals from the porfolio. However, you need to value the portfolio often in order to get an accurate reading. You wouldn't want to use just two valuations like 12/31/02 and 12/31/03.As an extreme example, let's assume that you started with $1,000 on 12/31/01, but you added $1,000 on 1/1/02 and ended up with $2,200 on 12/31/02. Using only two valuation dates, your return would appear to be 20%, because the formula essentially computes a $200 return as a percentage of the $1,000 invested. However, in reality, you had $2,000 invested for pretty much the entire year, so your return should be about 10%, or a $200 return on a $2,000 investment. Date Value Cash Inflow/ (Outflow)12/31/01 1,000.00 -12/31/02 2,200.00 1,000.00Return 20.00% Date Value Cash Inflow/ (Outflow)12/31/01 1,000.00 -01/01/02 2,000.00 1,000.0012/31/02 2,200.00 -Return 10.00%If it is difficult to value the portfolio at each contribution and withdrawal, then try to value it at the end of each month at least. Your numbers will be much more accurate.
Date Value Cash Inflow/ (Outflow)12/31/01 1,000.00 -12/31/02 2,200.00 1,000.00Return 20.00%
Date Value Cash Inflow/ (Outflow)12/31/01 1,000.00 -01/01/02 2,000.00 1,000.0012/31/02 2,200.00 -Return 10.00%
As an extreme example, let's assume that you started with $1,000 on 12/31/01, but you added $1,000 on 1/1/02 and ended up with $2,200 on 12/31/02. Using only two valuation dates, your return would appear to be 20%, because the formula essentially computes a $200 return as a percentage of the $1,000 invested. However, in reality, you had $2,000 invested for pretty much the entire year, so your return should be about 10%, or a $200 return on a $2,000 investment.Okay, how obvious was that?!? DOH!If it is difficult to value the portfolio at each contribution and withdrawal, then try to value it at the end of each month at least. Your numbers will be much more accurate. Okay, but unless the periods between contributions were equal, wouldn't this skew the results? With my 401(k), not a problem because contributions are input twice a month. However, if this were a taxable account and my contributions were irregular, such as one in January (15 days in) then the next not until say March 20th, how do you take into account the differences in how long the balance was at a certain level? I don't see any adjustment to the returns based on # of days in the formulas. Or, is this just too anal? :)I REALLY appreciate you taking the time to explain this stuff. I'm trynig to get more granular in my analysis of our funds.3MM
So far as my long term record is concerned, it is virtually impossible to tell.Joel, I guess I would have a problem both with publicly criticising a very successful long term investment strategy and touting my own, IF I Had No Way To Determine How Successful My Strategy Was.
If you had read the entire post, you would have seen that my strategies have evolved over the years, in particular with the advantage of computer technology, both hardware and software. Trading in 1974 was very different from now. I was very different in 1974 than I am now.If you think that the dollar cost averaging posted gives good results, fine. I do not, and for the reasons I have given. I also think that it is naive to expect that such a strategy will be profitable in the future. It may or may not be. If I had a net loss over a 5 year period, I would reconsider what I was doing. Actually, if I had a net loss over a 1 year period I would look very carefully at what I was doing, and try to find out what I had done wrong.So far as the long term aspects of dollar cost averaging, I should just point out that you have more money in the long term if you avoid losing some in the short term.I remember overhearing a couple of brokers at lunch in 1987 after the October crash. "Oh Well," they said, "we are in it for the long term." Whenever I hear somebody say that, the chances are very good that he has just lost money. In this case, somebody else's money, of course.
remember overhearing a couple of brokers at lunch in 1987 after the October crash. "Oh Well," they said, "we are in it for the long term."Indeed, most investors who did nothing after the 87 crash did quite well; as long as they continued to do nothing.Hedge
The investors who sold at the beginning of October and bought later did considerably better, in general. Of course it depends on what they bought and sold.
Author: joelxwil | Date: 10/3/04 9:06 AM | Number: 42565 About a year ago, I looked at a 5 year period of dollar cost averaging into VFINX on a monthly basis, and the results were negative.Why would you even consider looking at history over such a short period of time. To be statistically significant, you must look at 30 to 50 years of market data before you can make any statement about whether a particular investment or strategy has worked or not.My only goal is to make the best of the good times and to get out with some profit before things get bad, if/when that happens.Market timing is a loser's game. You may be able to guess right for a while, but no one can reliably predict the market over a statistically significant period of time. Even if you happen to guess right when to buy, you have to guess right, again, when to sell. This is what every novice investor who ever lived has tried unsuccessfully to do. Professional investors have been able to beat the average slightly, but the entire advantage gets eaten up in extra costs, and the result ends up no better than the total stock market. So, why not just use an index fund?Russ
Author: joelxwil | Date: 10/3/04 2:09 PM | Number: 42574 If you had read the entire post, you would have seen that my strategies have evolved over the years, in particular with the advantage of computer technology, both hardware and software. Trading in 1974 was very different from now. I was very different in 1974 than I am now.In other words, you haven't followed any one strategy long enough to find out whether it actually worked or not.Russ
Well, whatever I have done, even when I knew a lot less than I know now, I have done better than just buying and holding a fund like VFINX. I have never, for example, had a 47% drawdown, which is the case with VFINX. If I had, I would not consider it a success. In 1974, before personal computers, it would have been impossible to trade the way I trade now. I guess that the thing that amazes me about index fund investing without market timing, and about dollar cost averaging, is that people put forward what I consider dismal records - 47% drawdown, 5 years before you break even, etc., and want me to be impressed. I am not. Therefore, I do it differently. At the very least, index fund investors might learn from the past and make every effort to do better in the future.And if market timing is a loser's game, how is it that I have done it with some success, even before I found some more formal methods? I did make money in 2000 because I did time the market, for example.The bottom line is that losing 47%, or having a 5 year losing streak, is not like a sudden natural disaster, which could not have been prevented. It is the result of making mistakes, and the important thing is to avoid making those mistakes and learn from them if you do.Since around 1990, I have followed the strategy of trading funds and stocks primarily based on technical analysis, and timing the market. The technology has developed a but since then. I have learned a lot during that period, and I hope to learn more as time passes. If I had not learned anything during that period of time, I would consider myself a failure.But the buy and hold crowd simply does not seem to learn.
Joel, how can you say your investing method is a success, when you can't even state definitively if you've made any money? Just because you've never had a 47% drawdown doesn't mean you're making money.Hedge
Well, I certainly have made money. In round numbers, in 1997 I had about $600,000 in my IRA, and today I have $1,176,779.17. In addition, I have taken over $200,000 out at different points. But I am not going to go back and reconstruct every trade, or calculate exact percentages. I don't even have the documentation anyway - I just remember the approximate figures from when I left MITRE. Since the sell-off in 2000, there were some bad years, but I think I made a little or at least broke even. I stopped putting money into the retirement plan when I left MITRE in 1996, and rolled it over to an IRA. I have done various things in taxable accounts, but those were drawn down for stuff like remodeling my house.And yes, I was doing things somewhat differently in 1997, because I have actually learned stuff since then. It was still the same idea, however: timing and trading. I just formalized some things.In the meanwhile, you can check my journal to see how I do in the future, and how I did since I started it.How have you done?
So, if I have this straight. You started with $600K and ended up with the equivalent of $1376K over a period of 7 years. That's, what, a 12.6% yield? That's a pretty good yield. But it sounds like it's been made at a substantial risk. Still, my hat's off to you if you can keep it up.I just got back into the market in July of this year. Any figures I would have would be meaningless; even though they are nicely positive. At this point in my life, I can't afford to take the risks you do. I'll have to be satisfied with what my various ETFs return. Hedge
In my previous post, I assumed you didn't make any further contributions since 1997. That's probably not realistic, since this is a 401k, is it? So, on reflection, your yield may have been substantially smaller.Hedge
Author: joelxwil | Date: 10/3/04 4:59 PM | Number: 42581 And yes, I was doing things somewhat differently in 1997, because I have actually learned stuff since then. It was still the same idea, however: timing and trading. I just formalized some things.In the meanwhile, you can check my journal to see how I do in the future, and how I did since I started it.Just for the heck of it, I checked your profile. In the interview you rave about how bad Oakmark's OAKMX is and how great Thurlow Growth's THRGX has been.So, I checked the record. OAKMX is UP +14.07% in the last year and UP 7.76% per year over the last three years. On the other hand, THRGX is DOWN 25.06% in the last year, and DOWN 13.89% per year for the last three years.This is what you call good returns?Russ
Grrr. Should have reread your post before I added the 401k comment. Sorry.
Depending on when I took out the money, the rate is 13-14%, but I am not going to go back to figure that out.I find it remarkable that this is supposed to be a high-risk strategy. I view it as rather low risk. Frequent trading is not at all high risk. Bad trading is high risk. Sometimes people think that not trading reduces the risk, but that is simply not so. Every day is a trade: you keep what you have or you sell and buy something else. It is just important to evaluate things properly. People who do not know how to evaluate properly hold on to what they have and think that changing will bring risk. I know a guy who has held SUNW since 1999. He could not figure out how to sell. Now that is high risk.On the other hand, the formula used to assess risk never seemed to make sense to me, since they were only based on standard deviation. I am more interested in a function that would look like:Prob of loss (L, N) = P.which would give the probability of taking L percentage loss and not making it back for N days. For large L and N you would want a small P, but for small L and N you could tolerate a large P. But I have never seen any such thing. You could calculate it based on past performance, but you would need daily balances, or perhaps at least weekly.I cannot be absolutely sure, but I think that the worst monthly loss I ever had was in January of 2000, and that was a little over 11%. In addition, that was in a taxable account that was leveraged with margin at about 30%. The next month I made 46%, and after than I lost 10% and went to cash.If you are doing well with ETFs you are most likely in foreign funds. I keep thinking I will buy some of those, but they all look very extended at this point.
"So, I checked the record. OAKMX is UP +14.07% in the last year and UP 7.76% per year over the last three years. On the other hand, THRGX is DOWN 25.06% in the last year, and DOWN 13.89% per year for the last three years."WOW, I had forgotten about that. I wonder when I wrote that. At the time I wrote it, I do remember that Thurlow had done very well. After that, he crashed and burned, and I forgot all about it. OAKMX did poorly, and there were so many redemptions that the manager had to sell stuff to take care of redemptions. As a result, people saw the NAV go down but still had to pay capital gains taxes if they were in a taxable account. Not good. Another reason not to buy and hold.And another reason to check my profile every now and then.
Knowing they are forever going to be buyers of food, they welcome falling prices and deplore price increases. (It's the seller of food who doesn't like declining prices.) Yes, but Buffet does not mention that we all intend to be sellers as well as buyers. the hamburger analogy doesn't cover that aspect of most peoples' plans. WEB must realize this as well. You do have to hope for increased prices come the day you live from the sale of investments. While we all would like to live from the income, that may not be within reach.Deac
You do have to hope for increased prices come the day you live from the sale of investments. While we all would like to live from the income, that may not be within reach.Yes, but it doesn't make any sense to stress out about it in the meantime. If you are confident in the value of the stock, then you won't care about short-term declines in price and will actually welcome them.Price declines do become a problem, however, if you manage your affairs in such a way that you could be forced to sell a stock at short notice because of a need for cash.
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