Aug 15
Blue Plate Special – September 4th
On September 4th, I will be giving a talk on the benefits of Asset Allocation. The presentation is titled, “Passive Investing Through Asset Allocation. For a limited time, I’ve made the Passive Portfolio spreadsheet available under “Links” over on the right-hand edge of this page. Click on Passive Portfolio and then download the SL.xls file. If Excel asks you whether or not you wish to activate the macros, do so. Also, the password is physlab. The spreadsheet seems to work better on Windows than it does on my Mac Leopard operating system. You may not be able to see all the IRR calculations as the macros are not always available to remote users.
If I can manage to upload a SS where the macros are accessible, I will do so.
Lowell Herr
Photograph: Backside of farm house near Martinsburg, Pennsylvania
August 17th, 2008 at 6:42 am
Lowell,
I’d like to thank you for making this one available. I have a passive portfolio going back about five years that I would like to put into the spreadsheet and this template extending over 9 years should be a great help. Now to gather up all the statements and do the data entry task:^(
Thanks,
Bob Warasila
August 17th, 2008 at 6:51 am
Bob,
Do you know if Excel has an analysis “package” to calculate Time-Weighted Return as it does to calculate Internal Rate of Return? IRR is sometimes called Dollar-Weighted Return and Excel may use that term.
I have not found TWR within Excel but I may be seeking for the wrong term. There are many times when I would like to have a good printed manual. They no longer exist.
BTW, does the PP spreadsheet work for you?
Lowell
August 17th, 2008 at 2:19 pm
Lowell,
You’re much deeper into returns than my knowledge, but when you Google TWR one finds an interesting web site which you are probably aware of:
http://www.andreassteiner.net/performanceanalysis/?Return_Calculation:Returns_with_Contributions:Money-Weighted_Returns
Their description of TWR says the portfolio must be evaluated at the point where “new” money is invested or extracted. That seems to me to be beyond any canned function within EXCEL. BUT I’ll think some more about it based on what I learned from this web site.
Bob
August 18th, 2008 at 6:38 am
Bob,
Yes, I am familiar with the above reference, and many similar. I’ve been in the middle of a “benchmarking” discussion over on Bogleheads, and we seem to be talking past each other. Those taking the opporsite side of the argument contend one can and should only use TWR to measure benchmark performance. Since 1966, the Association for Investment Management and Research (AIMR) set Time Weighted Return (TWR) as the standard for measuring portfolio manager performance as this method is not affected by cash flow. Cash moving in and out of a portfolio is something a money manager does not control. However, one can construct cash flow situations where the TWR method will give much higher returns than what the client actually receives. If there is no cash flow, IRR and TWR calculations give the same result.
My Captool software will calculate both TWR and IRR values for the portfolio, but only IRR for the benchmark. The more expensive Captool versions will handle both for the benchmark. What I find is that TWR values are nearly always higher than IRR values.
Measuring portfolio and benchmark returns is far more complicated than one might imagine. One of the better articles on this problem can be found in Peter L. Bernstein’s book, “The Portable MBA in Investment.” In that book, the paper of interest is “Evaluating Investment Performance,” by Nancy L. Jacob.
This is a topic that needs a lot of attention and discussion.
Lowell