I think the writer in this article is saying that all the while, since 2007, the shanghai index is on a very long down trend. When looking at the index over the past 5 years, the upward push from Nov/Dec (about 2300 to the peak of 5000 points) is an anomaly and manipulated. In time, it will continue the down trend from 2300.

As John Mauldin wrote in his “Thoughts From the Frontline” e-letter this week: “Chinese individual investors are not primarily ‘value’ investors. Sky-high valuations don’t seem to faze them. They are primarily momentum investors who buy whatever is moving and sell whatever is falling.

“According to my friends who go to casinos and watch the Chinese gamble, they tend to jump on a ‘trend’ such as red coming up on the roulette table repeatedly — never mind that the odds are only ever 50-50. Red is seen as hot and therefore the way to bet. That carries over into trading styles. …”

When highly unsophisticated investors run into trouble, they panic quickly and try to get out at any price. The same inexperienced bettors who drove Shanghai up to 5,000 will take it way down, maybe to the last bear-market low above 1,700 — or maybe even lower, to 1,500, before it finds a long-term bottom.

When Shanghai was peaking at 5,000 in June, I gave you five words of advice: Get. The. Hell. Out. Now.

To which I’ll add five more: And. Stay. The. Hell. Out.

http://www.marketwatch.com/story/chinas-st...15-07-08?page=1

If I may add, it is sort of a trick question; by asking how would the ROI drop in comparison to the IRR.

IRR or CAGR has the element of time, while ROI has not. The ROI can remain the same, and the IRR will decrease as time moves forward.

For example:
If IRR is 9.16% p.a., and the corresponding end period value (in 2 years) is RM 11,915.00. The ROI is 19.15%

And if the ROI is still RM1,915 or 19.15% at the end of 3 years, the IRR is 6.01%
And if the ROI is still RM1,915 or 19.15% at the end of 4 years, the IRR is 4.48%

In other words, if you pull out of an investment and keep the profits under your bed, you locked in the ROI but not the IRR.

You should stop wondering and make any further detective work on how much the ROI dropped; since the relevant info on how long the investment was held was not given.

You should also note that the -6.5% is based on a chart with a 3 weeks old date as its starting point. If you use one-year-old date, or any other date as the starting point, the growth rate will be different. Maybe showing a huge gain instead of a negative growth.

"...his China fund's IRR dropped from 20%+ to IRR 10%"
Are you working on the wrong premise that the drop is -10%?

Be careful with the "English" in the sentences.
It only shows a 10% difference; not a "drop in percentage".

A "percentage drop" is calculated based on its initial value. Going from 20 to 10, is a -50% drop.

So you see, you have made several wrong maths logic to built up a question or maths problem. How to find a valid solution to an invalid problem?


Thank you. I think it is worthwhile to further clarify some maths logic, especially IRR, since it has implications on how we do the 'investments' in unit trusts.

Did it. Done it.
Vomit through out the ride.
0% in China exposure since then.

of course DCA wins lar... since both also DCA.

PS. Lump sum method actually means one shot. So you either tembak the 1 million at year 0 or 20.

You can even do it daily if you want... as long as it meets the minimal requirement.

yklooi, the above and your other posts on same topic of IRR and annualised rate referred...

1) Basically, annualised means 'making the rate into an annual rate or a yearly rate'.

2) If the maths is correct, it cannot be 'more accurate'. Or less accurate.

3) For example:
Start value = 10k
End value = 13k
ROI is 3k.
ROI can also be expressed in percentage: 3k / 10k = 30%

If the time taken to get the 30% growth rate is 3 years, then the IRR (the annualised rate) is:
=(1+30%)^(1/n)-1 (where n is the 'time taken')
=(130%)^(1/3)-1
= 9.14%

4) More examples:
If the fund grows 1% in 1 month, then the IRR is
= (101%)^(1/(1/12))-1
= 12.68%

If the fund grows 1% in 30 days, then the IRR is
= (101%)^(1/(30/365))-1
= 12.87%

If the fund grows 3% in 90 days, then the IRR is
= (103%)^(1/(90/365))-1
= 12.74%

If the fund grows 6% in 180 days, then the IRR is
= (106%)^(1/(180/365))-1
= 12.54%

And if the fund grows 36% in 3 years, then the IRR is
= (136%)^(1/(365x3/365))-1
= (136%)^(1/3)-1
= 10.79%

5) From the above examples, so how is that the IRR is "less accurate" when the time take by an investment is less than 1 year? As mentioned; when the maths is correct, it cannot be less accurate or more accurate.

6) Please remember that the IRR is "making the ROI rate to an annual percentage".
So, if you buy a fund today, and it increases by 0.3% the next month or in 30 days, the ROI is 0.3%.
The IRR is
= (100.3%)^(1/(30/365))-1
= 3.71%

If you buy another fund today, and it jumps 3% tomorrow, the ROI is 3%. The IRR is
= (103%)^(1/(1/365))-1
= 4848172.45%

The former fund could be a money-market fund, and the latter a volatile fund. And yes, the latter fund has a very huge IRR, since, inside the maths, it was projected to grow 3% every day for 365 days, and it was being compounded daily!

So don't blame the maths if you don't know or understand what you want but simply annualised the ROI to IRR.

====================

Further notes:

1) IRR is the same as CAGR.
2) XIRR is the name of a function in the Excel spreadsheet.
3) IRR is a simple formula (as shown in above examples). It used in calculations with only one start value or one purchase.
4) The formula in XIRR is more complex; it is a recursive formula; and it is used to calculate the IRR in multiple purchases.

Yes, it depends on how you use the numbers, as any numbers in itself has not much meaning. For example, the average of 3 numbers is 4. We can only confirmed that the sum of the 3 numbers is 12; we cannot tell for sure what the 3 numbers are.

They can be 4+4+4 or 3+4+5 or 42-10-20 or any other possibilities we can try to guess.

So similarly, if someone said that Fund A has a 10-year IRR of 10%; we can only tell for sure that the "end value divided by the start value" is:
= (110%)^10 = 2.59374%

And if the start value is RM1000, then the end value is 1000 x 2.59374% = RM2593.74; and the ROI is RM1593.74. But this is a big if, and we are trying to guess what is the start value to calculate what is the ROI in dollar (or rather ringgit) amount.

As in the above example of the average of 3 numbers, we can only work out the total sum of the 3 numbers. Similarly, in the 10-year IRR of 10%, we can only work out the percentage of ""end value divided by the start value".

So, if we try to put in any other guesses or further assumptions into the numbers, it is up to you and your own good judgement!

Let's say if I'm a agent selling Fund A, and only show you the 10-year annualised rate of 10%; and if you mistakenly conclude that Fund A consistently gives a 10% growth rate each year, and you will have a gain of 10% after holding it for 1 year, then up to you, lor... should I say anything more to discourage the purchase?

==========

Correction: there is an error in the decimal... the ROI% should be 259.3742%.



This post has been edited by j.passing.by: Aug 11 2015, 05:43 PM

Yes, the excel function XIRR is easy to use, and will gives the IRR on a series of purchases.

It can be used to find the IRR of each fund bought in various times, as well as on a grouping of several funds, and on the entire portfolio too.

The function only needs a column of dates, and a column of values, for example:
25/01/2013 -RM1,000.00
01/06/2014 -RM1,000.00
30/07/2014 -RM1,500.00
10/03/2015 -RM2,000.00
31/07/2015 RM6,000.00

IRR (as at 31st July) = 8.18%
ROI = RM500
ROI% = 500 / 5500 = 9.09%

Please slowly read again post #1117. The answer is there, just that you are too preoccupied with a misconception, and not letting in any new info to flow into the grey cells, and allowing the misconception to hinder you from working it through on your own...

I think the only thing I left out is that IRR is both an anualised and a compounded rate.

And without repeating myself... part of post #1117 recopied:
"The former fund could be a money-market fund, and the latter a volatile fund. And yes, the latter fund has a very huge IRR, since, inside the maths, it was projected to grow 3% every day for 365 days, and it was being compounded daily!"

If we looked into the formula: (???%)^(1/n)-1
If n is less than 1 year... or we can be very specific using the below examples:

If it is 1 day, then n is (1/365); and the formula will be ^(1/(1/365) = ^365.
If it is 30 days, then n is (30/365); and the formula will be ^(1/(30/365) = ^12.17.
If it is 10 months, then n is (10/12); and the formula will be ^(1/(10/12) = ^1.20.


So, this means, when it is 1 day, that we are compounding it 365 times. And when it is 10 months, we only compounded it 1.2 times.

In other words, we are projecting or extrapolating the ROI% to its annualised IRR rate, and how many times we are extrapolating it depends on how closed is the investment time to 1-year. The shorter is the invested time, the more times we are extrapolating it.

So, if you truly understand how the maths works, and the whole process of converting the ROI% to IRR, then it is up to you whether you want to do it or not. Then the answer is obvious whether it is still "a meaningful representation even if the investment is less than 1 year".

Let the above thoughts sink in first, before giving up!

=============

If it is 12 months, then n is (12/12); and the formula will be ^(1/(12/12) = ^1.00.
If it is 36 months, then n is (36/12); and the formula will be ^(1/(36/12) = ^0.333.
So, when n is greater than 1 year, the IRR is sort of averaging down the ROI.

As said before, if we cash out of any investment, ROI is maintained. And if we put the cash under the bed, the IRR is slowly reducing with time...

HANG SENG INDEX
23,916.02 -582.19 -2.38%

HANG SENG CHINA ENT INDX
11,042.79 -221.85 -1.97%


S&P/ASX 200 INDEX
5,382.08 -91.15 -1.67%

Straits Times Index STI
3,061.22 -91.84 -2.91%

KLCI 1,609.93 -26.78 -1.64%

FTSE BM SmallCap 14,233.17 -660.87 -4.44%


Nowhere to run to, baby
Nowhere to hide
Got nowhere to run to, baby
Nowhere to hide

It's not love
I'm running from
It's the heartaches
That I know will come...

But more often than not, Fund A is a young fund, so no 10-year record to compare.
So only the 1-year or 3-year growth was shown.

And since Fund A is more volatile, when the going is good, it has a higher return than Fund B; and when the going is bad, it has a bigger negative return.

The good salesman recommending Fund A elected to show the performance at the peak of the market, say as at 30th April. Fund A has the higher return, and since the investor usually goes for the fund with the better returns, so Fund A wins!

(And unknown to the investor, the selected Fund A and Fund B is not in the same market sector. )

From 31/07/15 - 12/08/15:
EISC -11.32%
benchmark, small-cap index -11.39%

KGF -7.90%
benchmark KLCI -06.57%

For a young investor, should go for more risk and take the small-cap fund...

that's why you took both.

Do you understand why people do DCA in the first place?

If we can somehow know for sure the market will be dropping like a stone, say -10% or -20%, then it is better to move all out before it happen. No point holding onto them, or moving only a portion of the funds.

Then only move back in after the market strike its bottom...

Me, I had moved some money in on Monday... yes, a bit too early; but what to do... should I move in more tomorrow or next week, nope since I have already marked in the calendar to make a purchase only once a month. So have to sit tight for now, and wait till Sept. instead of chasing the market up and down endlessly.

Just my 2 cents... that's how I'm doing it, maybe not as good as other people here in the timing and getting better returns...

My hobby is already following the news and monitoring the funds, but monitor only, no action taken. If we decided on an investment strategy like DCA and then don't follow it, then there is no strategy to speak of.

Cash Management Fund, if I'm not mistaken.
It is the name of a money-market fund offered by fundsupermart.

If you're holding it for sometime, you can do a IRR on it and compare the annualised rate to FD. And how good it is, will depends on which bank you selected to do the comparison, any FD promotion, 1-year or 6-month rate, etc...

Partially true... I don't have any professional, expert knowledge; only general, layman knowledge... it could be true that I entered unit trust earlier than some or most, and has the head start in making all the mistakes. (And still am repeating some of the mistakes.)

Just sharing some knowledge and mistakes; and the reader is well advised, before drinking it all in, to differentiate which is which!

It depends on what you were doing; whether it was a long-term DCA or a short-term VA. It would be incorrect to take a short-term view on a long-term investment, and vice-versa.

Birth of baby panda brings good fortune!