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Fidelity's new rate of return feature


ERICOPOLY
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For those of you who are using Fidelity, they have put out a cool new "rate of return" link for each of your accounts.

 

For the period 2/01/2003 to 2/28/2010:

My RothIRA has compounded at 118.51% annualized for a cumulative gain of 25,153.26%.

My taxable brokerage has compounded at 53.84% for a cumulative gain of 2,007.36%.

 

A couple of observations:

1)  These kinds of numbers won't be repeated

2)  I trade without tax considerations in the RothIRA, so I think that's why the performance is so much better

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Eric,

I use fidelity too but haven't been able to figure out where to get the rate of return #.

 

Now if only I can figure out how to get the same kind of returns  :D

 

 

Yes, Eric.  Forget the Fidelity button that will give us OUR rate of return.  Where's the button that will give us YOUR rate of return!?  :)

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Eric,

I use fidelity too but haven't been able to figure out where to get the rate of return #.

 

 

After logging in, it takes me to a page "Account & Trade" where there is a "Summary" tab.  This page comes up as the default after logging in.  For each of my accounts it states the dollar value "Account Balance", and in the next NEW column over to the right there are hyperlinks for each account "See rate of return".  You click that link and the rate of return comes up.

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The results of both accounts are heavily influenced by the mid-2006 opportunity in FFH call options.

 

The RothIRA is influenced by how I've treated it.  Whenever FFH tanked I added leverage through more call options, and I would load these into the RothIRA so after an expected recovery in FFH price I could then sell it to reduce my net leverage free of taxes.  It was leveraged heavily before the short selling ban, then I sold out completely in that account after the rally and held a high percentage of cash in that account for a while... meanwhile I hadn't sold in my taxable account so it was getting clobbered last Feb/Mar while the RothIRA was where I once again loaded up on my FFH calls with leverage.  Then I sold my FFH in that account last summer after the rally to $335 and proceeded to stuff it disproportionately with ORH calls last year before the buyout, so the day of the announcement my account rallied 60% or so in one day.  Then when I bought FUR last year I stuffed that account more than 70% into FUR near $9, then sold in January near $13 and bought C, adding another little pop.  Meanwhile, my taxable account is being left in the dust.

 

A lot of one-way bets with leverage.  This could very well have ended very badly, which is why I'm ready to admit there is a large amount of luck involved.

 

Now, the FFH opportunity didn't happen until 2006 but I'm reporting the numbers going back to 2003.  If you start in March 2005, the annual rate of return is 141.99% and if you start in March 2007 it is 165.29%.  Starting in March 2009 it is 309.64% and YTD (defined as until 2/28/10) it is 16.8%.  Those are the only time periods for which they allow me to calculate the return.

 

They take into account contributions and withdrawals -- so the numbers aren't fudged.

 

There is another boardmember here who has done about 10,000% since mid-2006.  He was working for the same employer as me in 2006 and retired (at age 25) later that year.  That came from FFH calls.  Since then, he loaded up on Chinese microcap stocks last year and posted that his portfolio had a P/E of about 1x.  Then the multiples on those stocks have exploded since and that's been his second major tailwind.  Anyhow, I wish I had copied him last year.

 

 

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Eric, I like the way you managed your capital.  It's normally

not wise to overbet your capital because this eventually leads to "gambler's ruin".  The funds you used may have been initially almost all you had, but this was likely only a small part of your potential lifetime earnings, considering your age.  Therefore, a big loser or two would not have truly

been ruin -- you could have recovered, given normal earnings expectations.  :)

 

The trades you took had an asymetric reward/risk payoff if they worked.  You stayed mostly in your sweet spot, mainly FFH which you evidently came to understand very well.  Congratulations.  :)

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Eric,

 

Congratulations -- Those are awesome returns!  Looks like you could retire too, but I imagine you're having way too much fun!

 

I wouldn't say it was luck...but it took a strong conviction to load up like you did!  

 

LOL--You can't get those kinds of returns being diversified!

 

My Fidelity numbers for the last 12 months almost hit triple digits, but longer periods are in the mid teens...

 

Way to go!

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Ericopoly, it's true that you benefited from luck in your Roth account, but you also deserve credit for being flexible with your asset classes. Using options to support your more aggressive moves is something that a lot of value investors don't think of, even when prices seem unsupportable by near term results.

 

I had a pretty risky portfolio as well, but I held mostly equity. In retrospect, I could have achieved the same results by holding LEAPS in my leveraged companies, while increasing my equity allocation in the fortress companies. Same results, but with less portfolio risk.

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The funds you used may have been initially almost all you had, but this was likely only a small part of your potential lifetime earnings, considering your age.  Therefore, a big loser or two would not have truly

been ruin -- you could have recovered, given normal earnings expectations.  :)

 

That was my thinking in 2006 -- I figured a total wipeout would mean I retire 2 years later than otherwise.

 

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Guest dealraker

Almost all "rate-of-return" features I  see from all brokerages include additions to capital in the "rate-of-return" figure.  I have a friend who is a terrible investor who thinks he has a great "rate-of-return" because he looks at his account and sees this big number.  I took his statements a proved that his "rate" included his capital additions as "return" and not simply when-they-occured additions to capital.  He still goes around quoting his rate-of-return as being 20.3% when he's actually earned more like 3%.

 

Nothing will ever convince my friend that he isn't a superior investor.  He is a superior wage earner and he adds significantly to his account on a monthly basis.  He contributed huge, literally huge amounts of money to investments in they typical Cisco's, Intel's, Dell's etc. all through the late 90's and is still investing in the same stocks because of his "figure."

 

He further concludes that he has had this 20% return for over 20 years now.  I quickly did a calculation at one point and showed him that if he did have a 20% return since he opened his account 20 years ago - that from the initial contribution alone- not even including the massive addions he's added since then- he would have $20 million dollars, not the less than one million he has in the account.

 

Still, he tells everyone he has a 20.3% annual rate-of-return because his statement tells him so.

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I remembered a post from Eric saying that in 1998 he started with 800$ and that he is now retired. I didn't understand how 800$ could compound to enough $ to retire. Now seiing the numbers I understand.

 

I respect you Eric, you have done an extraordinary job with your portfolio. I guess a lot of people are going to go to bed tonight swearing about their crappy 75% return in 2009. ;)

 

BeerBaron

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Ericopoly, it's true that you benefited from luck in your Roth account, but you also deserve credit for being flexible with your asset classes. Using options to support your more aggressive moves is something that a lot of value investors don't think of, even when prices seem unsupportable by near term results.

 

I had a pretty risky portfolio as well, but I held mostly equity. In retrospect, I could have achieved the same results by holding LEAPS in my leveraged companies, while increasing my equity allocation in the fortress companies. Same results, but with less portfolio risk.

 

 

Rabbit, my conviction is increasingly strong that the strategy you outline in your second paragraph is optimal if you have one or more very high conviction ideas.  Use long term nonrecourse leaps or warrants if these can be purchased economically to be 100% or more invested in your best idea(s) if these are compelling.  Then, use the cash freed up to be invested without additional leverage in Buffett style companies with huge moats purchased at bargain prices.  

 

If your best idea(s) doesn't work, you'll still have most of your assets intact -- a bad year, but a minor setback in the long run.  :).  Most value investors fail to load up when they have a really good idea.  This strategy reduces the risk in such a load up.  :)

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Almost all "rate-of-return" features I  see from all brokerages include additions to capital in the "rate-of-return" figure.  I have a friend who is a terrible investor who thinks he has a great "rate-of-return" because he looks at his account and sees this big number.  I took his statements a proved that his "rate" included his capital additions as "return" and not simply when-they-occured additions to capital.  He still goes around quoting his rate-of-return as being 20.3% when he's actually earned more like 3%.

 

They are doing something different at Fidelity.

 

I rolled over to my RothIRA a sum of money (at the beginning of this year) that amounted to a boost of roughly 40% in the assets of the account.  However, the so-called YTD return for the account is calculated as 16.8%.  In truth, the account is up roughly 30% if you include the March gains (I hold SFKUF, C, BAC calls, and WFC in the account... and last week added SSW a bit below $10).

 

The computation for YTD in my RothIRA is accurate for 2010 despite the roughly 40% boost from the rollover contribution.  I would assume the algorithm would therefore be equally accurate for the rollover contribution I made in 2008.  The only other contribution I made was in 2004 (I think it was a whopping $4,000).  I was disallowed a contribution in 2005 due to income restrictions (it is after all a RothIRA).

 

Now, as for the other account, I have been sucking money out of it -- in fact, I have now withdrawn nearly all of the money from it because I moved it to Interactive Brokers so that I could margin my FFH.TO holdings.  So if they are counting contribution/withdrawals as "performance", just imagine what it would have been without those withdrawals!

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Almost all "rate-of-return" features I  see from all brokerages include additions to capital in the "rate-of-return" figure.  I have a friend who is a terrible investor who thinks he has a great "rate-of-return" because he looks at his account and sees this big number.  I took his statements a proved that his "rate" included his capital additions as "return" and not simply when-they-occured additions to capital.  He still goes around quoting his rate-of-return as being 20.3% when he's actually earned more like 3%.

 

Nothing will ever convince my friend that he isn't a superior investor.  He is a superior wage earner and he adds significantly to his account on a monthly basis.  He contributed huge, literally huge amounts of money to investments in they typical Cisco's, Intel's, Dell's etc. all through the late 90's and is still investing in the same stocks because of his "figure."

 

He further concludes that he has had this 20% return for over 20 years now.  I quickly did a calculation at one point and showed him that if he did have a 20% return since he opened his account 20 years ago - that from the initial contribution alone- not even including the massive addions he's added since then- he would have $20 million dollars, not the less than one million he has in the account.

 

Still, he tells everyone he has a 20.3% annual rate-of-return because his statement tells him so.

 

your acquaintance sounds like a real dunce -- I can't handle people that insist they are correct, contrary to rock-solid facts and logic.  I would probably have to stop hanging out with them.

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I remembered a post from Eric saying that in 1998 he started with 800$ and that he is now retired. I didn't understand how 800$ could compound to enough $ to retire. Now seiing the numbers I understand.

 

I respect you Eric, you have done an extraordinary job with your portfolio. I guess a lot of people are going to go to bed tonight swearing about their crappy 75% return in 2009. ;)

 

BeerBaron

 

I had $5,000 when I started at Microsoft in 1997.  It went up a whole lot due to stock options (to about $500k) but I cashed out all I could (after a significant crash) about $80k in May 2001.  I did not put that money in stocks, but rather bought a house.  Then another house and another.  The housing market went up, I made money, and sold a house (one I was renting out).  I got a line of credit on the first house I'd bought (but no longer lived in) and used that credit line (in addition to the money from the house I'd sold) to buy FFH calls in 2006.  I also put 100% of my RothIRA in those calls, but my RothIRA at the time was only 7% of the size of my Microsoft 401k plan so it was truly peanuts in comparison.  My Microsoft401k plan was locked down so that I could only invest in a truly limited selection of mutual funds and Microsoft stock.  When I quit that job in January 2008, I took the money out of that company plan and put it in a Fidelity Rollover IRA.  Then I rolled that money into my RothIRA, 1/2 in Fall 2008 and the rest in 2009.  Then my 2009 contribution was disallowed due to income once again (capital gains) and so I had to wait until 2010.  That was very costly -- I should have rolled the whole amount in 2008.

 

So anyways, for years I had a 401k plan with Fidelity and they always computed gains accurately, accounting for the regular contributions that one makes every paycheck in such a plan.  I assume they are using that algorithm for computing returns for the rest of my accounts now.

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Fidelity's algorithm most certainly measure inflows and outflows correctly and takes them into account.

 

Many people are fools and don't adjust for this and thus think they are better than they are, but Fidelity's personal rate of return or annual equivalent are good from what I"ve seen.

 

I always tell people who want to invest is that the first step is to learn enough math to figure out what IRR is, what simple interest is, and how inflows and outflows affect calculations... if you can't do that, you'll never know how to measure if you are any good or not.

 

Ben

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It's quite hard to calculate the IRR with cash inflows and outflows. It's great that fidelity offers it. Since my broker does no provide me with such a great feature I'm forced to use a simpler solution. Which is (NAV Dec 31st - NAV of Jan 1st - Cash Inflows + Cash Outflows), the problem with this apporach is that it does not count the time value of the inflows/outflows during the year. Since I'm a net contributor to my stock accounts then it slightly understates my real returns... still better then Dealraker's friend.

 

By the way Eric... did you start reducing the leverage quite a bit or are you still very agressive?

 

BeerBaron

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