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Strategies & Market Trends : Portfolio Construction
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To: y2kate who wrote (531)8/16/2007 10:16:26 AM
From: Paul Chiu   of 1964
 
kate,

the last question is easy. i use the method employed by most mutual funds. my portfolio index is merely a NAV.

i started with 100 back in 10/1994. on any following days if i were to add money into the portfolio or take out, i would either add or subtract the day's cashflows and then figure out the new NAV by M2M the closing prices of all securities.

EXAMPLE

2 days ago, all securities worth $10,000 Index = 888
yesterday $110 was taken out
yesterday $56 check was deposited
yesterday all securities worth $10,000.32

so new Index would be:

i) cashflow
(10,000.32 - 56 + 110)/ 10,000 = 1.005432

ii) NAV
1.005432 * 888 = 892.82

this is how i have done it since 10/1994
my index was pegged at 100 10/31/1994 and
it M2M at 964.311 yesterday

to figure out the annualized returns, i use:

in EXCEL

10/31/1994 -100
08/15/2007 +964.311
XIRR + 19.37% per year

all other stuff to follow....

Paul
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