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when measuring personal returns, is a time weighted benchmark appropriate?


Shooter MacGavin
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Something i've been puzzling about recently.

 

It seems that when interactive brokers/fidelity or any other broker gives you personal returns, it's in dollar weighted terms (in IB's case, you can set it to this).  That's appropriate when measuring personal returns. However, when they show you the benchmark, it's time weighted.

 

Obviously the two are not apples to apples, but is a time weighted benchmark a good enough benchmark relative to dollar weighted returns?  I'm not sure about this. Let's say you had equal dollar contributions once a month to an index fund vs. your stock picks, would the index be a decent benchmark?

 

Thanks for your feedback

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I tend to think that temperament is part of the skill of value investing.  For example, if you are putting money in at the bottom of 2009 (extreme example), then that is part of being a value investor.  If you were not a value investor, you wouldn't do that, so I don't think you should compete against that sort of timing.

 

E.g., if I were not a value investor, I would be dollar cost averaging and never thinking about timing at all.  So maybe a dollar cost average benchmark? 

 

Anyway, if you can beat the regular benchmark by 3% annually, I think that's good enough.

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Unless your inflows/outflows are a large chunk of your portfolio ( either because your portfolio is small or you are getting huge chunks of money from Don Vito  8) ), it's likely that dollar-vs.-time average will be close.

 

 

 

 

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that makes a lot of sense.  It's something i want to do too, and it's going to be tedious work to pull all my historic trades.  Does it make a meaningful difference when you compare it to the returns on a total return index? 

 

 

 

Well you wouldn't have to put in all your trades, just the deposits/withdrawals from your account. Actually, you should include all of your investable liquid assets, whether they are in your investment account or not. So basically you would need to know the net aggregate inflows/outflows into your liquid asset accounts.

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