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Annualized IRR
Hello All,
Any help explaining AIRR would be greatly appreciated. We own a stock that has increased significantly in value, but the AIRR shown in Bivio (757.8%) doesn't seem right. I need a straight forward, unobtuse way of explaining it to my group. The explanation provided in Bivio doesn't do the trick.
Thanks in advance,
Valerie J.
BWC
Valerie, I presume your club has only owned this stock for a short time (Less than one year), which would account for the very high AIRR.
 
Annualized Internal Rate of Return calculates your current return then extrapolates that over a year (annualizes it).  A simple example: if a stock goes up by 1% after one day, then it's projected to have an IRR of 365% after one year (365 / 1 * 1%). If a purchase goes up 1% over two years, the annualized rate of return is 0.5% (365 days / 730 days * 1%)
 
 
This calculation is performed for each purchase of an individual stock, if purchased on more than one date, and the results combined together. This is the IRR portion -- the individual purchases each annualized and combined.  IRR or AIRR will be different for different people/groups/clubs depending on the various purchase dates involved.
 
Bob Mann
On 01/14/2021 9:40 PM V Johnson via bivio.com <user*37873600001@bivio.com> wrote:
 
 
Hello All,
Any help explaining AIRR would be greatly appreciated. We own a stock that has increased significantly in value, but the AIRR shown in Bivio (757.8%) doesn't seem right. I need a straight forward, unobtuse way of explaining it to my group.  The explanation provided in Bivio doesn't do the trick.
Thanks in advance,
Valerie J.
BWC
Thank you Bob! We've made six separate purchases of this stock starting in May 2020.
What info would I need to compile in order to work through the calculation myself?
Val J
BWC

On Thu, Jan 14, 2021 at 10:37 PM Bob Mann via bivio.com <user*12614800001@bivio.com> wrote:
Valerie, I presume your club has only owned this stock for a short time (Less than one year), which would account for the very high AIRR.
Annualized Internal Rate of Return calculates your current return then extrapolates that over a year (annualizes it). A simple example: if a stock goes up by 1% after one day, then it's projected to have an IRR of 365% after one year (365 / 1 * 1%). If a purchase goes up 1% over two years, the annualized rate of return is 0.5% (365 days / 730 days * 1%)
This calculation is performed for each purchase of an individual stock, if purchased on more than one date, and the results combined together. This is the IRR portion -- the individual purchases each annualized and combined. IRR or AIRR will be different for different people/groups/clubs depending on the various purchase dates involved.
Bob Mann
On 01/14/2021 9:40 PM V Johnson via bivio.com <user*37873600001@bivio.com> wrote:
Hello All,
Any help explaining AIRR would be greatly appreciated. We own a stock that has increased significantly in value, but the AIRR shown in Bivio (757.8%) doesn't seem right. I need a straight forward, unobtuse way of explaining it to my group. The explanation provided in Bivio doesn't do the trick.
Thanks in advance,
Valerie J.
BWC
Valerie, you can easily do this calculation using the Microsoft excel spreadsheet function XIRR.  You enter each purchase and date as a negative and the valuation amount and date as a positive and voila you have the annualized internal rate of return.  The formula is =XIRR(a1:a6,b1:b6) where column a is the dollar amounts and column b is the corresponding purchase and valuation dates.  This is explained in the Help section of the xcel spreadsheet.  Bivio does this calculation for you but is not correct if have purchases on more than one date.

Gene Close 

Sent from my iPhone

On Jan 14, 2021, at 11:06 PM, V Johnson via bivio.com <user*37873600001@bivio.com> wrote:

Thank you Bob!  We've made six separate purchases of this stock starting in May 2020.  
What info would I need to compile in order to work through the calculation myself?
Val J
BWC

On Thu, Jan 14, 2021 at 10:37 PM Bob Mann via bivio.com <user*12614800001@bivio.com> wrote:
Valerie, I presume your club has only owned this stock for a short time (Less than one year), which would account for the very high AIRR.
 
Annualized Internal Rate of Return calculates your current return then extrapolates that over a year (annualizes it).  A simple example: if a stock goes up by 1% after one day, then it's projected to have an IRR of 365% after one year (365 / 1 * 1%). If a purchase goes up 1% over two years, the annualized rate of return is 0.5% (365 days / 730 days * 1%)
 
 
This calculation is performed for each purchase of an individual stock, if purchased on more than one date, and the results combined together. This is the IRR portion -- the individual purchases each annualized and combined.  IRR or AIRR will be different for different people/groups/clubs depending on the various purchase dates involved.
 
Bob Mann
On 01/14/2021 9:40 PM V Johnson via bivio.com <user*37873600001@bivio.com> wrote:
 
 
Hello All,
Any help explaining AIRR would be greatly appreciated. We own a stock that has increased significantly in value, but the AIRR shown in Bivio (757.8%) doesn't seem right. I need a straight forward, unobtuse way of explaining it to my group.  The explanation provided in Bivio doesn't do the trick.
Thanks in advance,
Valerie J.
BWC
How useful is this information? Trying to understand

Alessandro


On Thu, Jan 14, 2021 at 9:37 PM Bob Mann via bivio.com <user*12614800001@bivio.com> wrote:
Valerie, I presume your club has only owned this stock for a short time (Less than one year), which would account for the very high AIRR.
Annualized Internal Rate of Return calculates your current return then extrapolates that over a year (annualizes it). A simple example: if a stock goes up by 1% after one day, then it's projected to have an IRR of 365% after one year (365 / 1 * 1%). If a purchase goes up 1% over two years, the annualized rate of return is 0.5% (365 days / 730 days * 1%)
This calculation is performed for each purchase of an individual stock, if purchased on more than one date, and the results combined together. This is the IRR portion -- the individual purchases each annualized and combined. IRR or AIRR will be different for different people/groups/clubs depending on the various purchase dates involved.
Bob Mann
On 01/14/2021 9:40 PM V Johnson via bivio.com <user*37873600001@bivio.com> wrote:
Hello All,
Any help explaining AIRR would be greatly appreciated. We own a stock that has increased significantly in value, but the AIRR shown in Bivio (757.8%) doesn't seem right. I need a straight forward, unobtuse way of explaining it to my group. The explanation provided in Bivio doesn't do the trick.
Thanks in advance,
Valerie J.
BWC

Gene is correct that the bivio calculation is done in the same way as the XIRR calculation in Excel.

However, I'd have to see proof that the bivio calculation is incorrect before I would accept that statement. In my experience, the calculations come out the same

This explains more about AIRR and why it is useful:

Benchmarking Your Portfolio

It allows you to get a true measure of how your investments have done for a particular time frame using your actual transaction data. You can compare this to the return you projected you'd receive when you bought them.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe


The calculation attempts to normalize the returns on your portfolio to an annual basis so each holding is comparable to the portfolio AIRR and to each other holding. It is like an APR for loans. But both the APR and the AIRR need to be taken in context.

As was earlier written, if a stock doubles in one month, that is a 100% return for the month, but a 1200% AIRR. Most likely your stock will not continue that trend. But it does force one to look at it and make a decision on whether to sell, buy more or hold.

APR is comparable to the AIRR. Let's say one takes a $100 loan for a month for monthly 10% interest. At the end of the month, you pay the lender back $110 and no bones are broken. But the APR on that loan is 120%, much more than any bank. But most likely the bank will not lend you $100 for any amount of interest, and if you really need that $100, you grin and bear it. But the APR provides comparability to other loans.

We use the AIRR to compare our club's performance with other clubs and with the S&P. We exclude the AIRR for any stock held less than a year because the outlandish numbers that we cannot compare.

Hope this helps.

Peter Dunkelberger
Sumner Stock Selectors Investment Club

On Fri, Jan 15, 2021 at 8:50 AM Alessandro Squeo via bivio.com <user*8340400001@bivio.com> wrote:
How useful is this information? Trying to understand

Alessandro


On Thu, Jan 14, 2021 at 9:37 PM Bob Mann via bivio.com <user*12614800001@bivio.com> wrote:
Valerie, I presume your club has only owned this stock for a short time (Less than one year), which would account for the very high AIRR.
Annualized Internal Rate of Return calculates your current return then extrapolates that over a year (annualizes it). A simple example: if a stock goes up by 1% after one day, then it's projected to have an IRR of 365% after one year (365 / 1 * 1%). If a purchase goes up 1% over two years, the annualized rate of return is 0.5% (365 days / 730 days * 1%)
This calculation is performed for each purchase of an individual stock, if purchased on more than one date, and the results combined together. This is the IRR portion -- the individual purchases each annualized and combined. IRR or AIRR will be different for different people/groups/clubs depending on the various purchase dates involved.
Bob Mann
On 01/14/2021 9:40 PM V Johnson via bivio.com <user*37873600001@bivio.com> wrote:
Hello All,
Any help explaining AIRR would be greatly appreciated. We own a stock that has increased significantly in value, but the AIRR shown in Bivio (757.8%) doesn't seem right. I need a straight forward, unobtuse way of explaining it to my group. The explanation provided in Bivio doesn't do the trick.
Thanks in advance,
Valerie J.
BWC
The Performance Report shows the AIRR for each stock. We have several stocks that were acquired, sold, and bought again years later as well as some stocks that were acquired on more than one date. As an example we first bought Ulta Beauty on 5/19/2014 and sold it some time later. We bought it again on 3/5/2018. The Performance Report shows an AIRR of 54.2% while a calculation using XIRR shows a return of 15.7%. This would explain why Valerie's return shows something like a 757.8% return.

Gene Close

On Fri, Jan 15, 2021 at 6:13 AM Laurie Frederiksen <laurie@bivio.biz> wrote:

Gene is correct that the bivio calculation is done in the same way as the XIRR calculation in Excel.

However, I'd have to see proof that the bivio calculation is incorrect before I would accept that statement. In my experience, the calculations come out the same

This explains more about AIRR and why it is useful:

Benchmarking Your Portfolio

It allows you to get a true measure of how your investments have done for a particular time frame using your actual transaction data. You can compare this to the return you projected you'd receive when you bought them.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe


That is not an incorrect calculation in bivio, it is a comparison between two different calculations that are not being done over the same time period.

You can adjust the time period for the calculation to include only your most recent ownership dates in bivio and then it will correspond to what the XIRR calculation is showing. You need to use the same start and end dates for both.

As everyone else has indicated AIRR calculations are annualized so a calculation done for a short time frame can be very misleading. AIRR is a rate of growth. If a stock jumps in the short term it is misleading to annualize that and assume it will grow at the same rate for the entire year.

That is why, by default, no AIRR amount is shown if you have held a stock for less than 6 months. You can adjust this wait period if you go to Administration>Tools>Club Configuration.

Just make sure that if you do adjust it below 6 months that you are aware that you might be looking at pretty distorted amounts.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe


On Fri, Jan 15, 2021 at 10:41 AM Ronald Close via bivio.com <user*25867400001@bivio.com> wrote:
The Performance Report shows the AIRR for each stock. We have several stocks that were acquired, sold, and bought again years later as well as some stocks that were acquired on more than one date. As an example we first bought Ulta Beauty on 5/19/2014 and sold it some time later. We bought it again on 3/5/2018. The Performance Report shows an AIRR of 54.2% while a calculation using XIRR shows a return of 15.7%. This would explain why Valerie's return shows something like a 757.8% return.

Gene Close

On Fri, Jan 15, 2021 at 6:13 AM Laurie Frederiksen <laurie@bivio.biz> wrote:

Gene is correct that the bivio calculation is done in the same way as the XIRR calculation in Excel.

However, I'd have to see proof that the bivio calculation is incorrect before I would accept that statement. In my experience, the calculations come out the same

This explains more about AIRR and why it is useful:

Benchmarking Your Portfolio

It allows you to get a true measure of how your investments have done for a particular time frame using your actual transaction data. You can compare this to the return you projected you'd receive when you bought them.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe


Very informative! Thank You Laurie.
Alessandro


On Fri, Jan 15, 2021 at 8:13 AM Laurie Frederiksen <laurie@bivio.biz> wrote:

Gene is correct that the bivio calculation is done in the same way as the XIRR calculation in Excel.

However, I'd have to see proof that the bivio calculation is incorrect before I would accept that statement. In my experience, the calculations come out the same

This explains more about AIRR and why it is useful:

Benchmarking Your Portfolio

It allows you to get a true measure of how your investments have done for a particular time frame using your actual transaction data. You can compare this to the return you projected you'd receive when you bought them.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe


Laurie,
How do you "adjust the time period for the calculation to include only your most recent ownership dates in bivio." I don't see that adjusting the wait period is the answer. The actual dates are already in the Investment Lot Cost Basis. I don't see any way to enter the dates for the AIRR calculation.

Gene Close





On Fri, Jan 15, 2021 at 8:35 AM Alessandro Squeo via bivio.com <user*8340400001@bivio.com> wrote:
Very informative! Thank You Laurie.
Alessandro


On Fri, Jan 15, 2021 at 8:13 AM Laurie Frederiksen <laurie@bivio.biz> wrote:

Gene is correct that the bivio calculation is done in the same way as the XIRR calculation in Excel.

However, I'd have to see proof that the bivio calculation is incorrect before I would accept that statement. In my experience, the calculations come out the same

This explains more about AIRR and why it is useful:

Benchmarking Your Portfolio

It allows you to get a true measure of how your investments have done for a particular time frame using your actual transaction data. You can compare this to the return you projected you'd receive when you bought them.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe


When you run an Investment Performance report, you will see date fields at the top of the report that you can use to adjust the dates.

If you just want to adjust them for one stock, click on the "detail" link you'll see on the right side of each line listing an investment.

That will take you to the specific set of cash flows used for that investment calculation. You can adjust the date range for the investment there.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe


On Sat, Jan 16, 2021 at 10:30 AM Ronald Close via bivio.com <user*25867400001@bivio.com> wrote:
Laurie,
How do you "adjust the time period for the calculation to include only your most recent ownership dates in bivio." I don't see that adjusting the wait period is the answer. The actual dates are already in the Investment Lot Cost Basis. I don't see any way to enter the dates for the AIRR calculation.

Gene Close





On Fri, Jan 15, 2021 at 8:35 AM Alessandro Squeo via bivio.com <user*8340400001@bivio.com> wrote:
Very informative! Thank You Laurie.
Alessandro


On Fri, Jan 15, 2021 at 8:13 AM Laurie Frederiksen <laurie@bivio.biz> wrote:

Gene is correct that the bivio calculation is done in the same way as the XIRR calculation in Excel.

However, I'd have to see proof that the bivio calculation is incorrect before I would accept that statement. In my experience, the calculations come out the same

This explains more about AIRR and why it is useful:

Benchmarking Your Portfolio

It allows you to get a true measure of how your investments have done for a particular time frame using your actual transaction data. You can compare this to the return you projected you'd receive when you bought them.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe


Back to AIRR.
  • On May 1, 2020, we purchased 139 shares of Aphria (APHA) at a cost of $3.565 per share for a total cost of $495.54. (We made additional purchases since then, but our lowest unit cost occurred on 5/1/2020.)
  • The value of the May 1st lot on 1/22/2021 was $12.92 per share for a total value of $1,795.88.
  • I've calculated an actual return of 262% ($1795.88-$495.54)/$495.54.
  • When I extrapolate the actual return (262%) out 365 days, the result is 360%. Bivio, however, shows 633%.
Any and all thoughts are welcome!

Valerie J
BWC


On Fri, Jan 15, 2021 at 10:29 AM Peter Dunkelberger via bivio.com <user*26984900001@bivio.com> wrote:
The calculation attempts to normalize the returns on your portfolio to an annual basis so each holding is comparable to the portfolio AIRR and to each other holding. It is like an APR for loans. But both the APR and the AIRR need to be taken in context.

As was earlier written, if a stock doubles in one month, that is a 100% return for the month, but a 1200% AIRR. Most likely your stock will not continue that trend. But it does force one to look at it and make a decision on whether to sell, buy more or hold.

APR is comparable to the AIRR. Let's say one takes a $100 loan for a month for monthly 10% interest. At the end of the month, you pay the lender back $110 and no bones are broken. But the APR on that loan is 120%, much more than any bank. But most likely the bank will not lend you $100 for any amount of interest, and if you really need that $100, you grin and bear it. But the APR provides comparability to other loans.

We use the AIRR to compare our club's performance with other clubs and with the S&P. We exclude the AIRR for any stock held less than a year because the outlandish numbers that we cannot compare.

Hope this helps.

Peter Dunkelberger
Sumner Stock Selectors Investment Club

On Fri, Jan 15, 2021 at 8:50 AM Alessandro Squeo via bivio.com <user*8340400001@bivio.com> wrote:
How useful is this information? Trying to understand

Alessandro


On Thu, Jan 14, 2021 at 9:37 PM Bob Mann via bivio.com <user*12614800001@bivio.com> wrote:
Valerie, I presume your club has only owned this stock for a short time (Less than one year), which would account for the very high AIRR.
Annualized Internal Rate of Return calculates your current return then extrapolates that over a year (annualizes it). A simple example: if a stock goes up by 1% after one day, then it's projected to have an IRR of 365% after one year (365 / 1 * 1%). If a purchase goes up 1% over two years, the annualized rate of return is 0.5% (365 days / 730 days * 1%)
This calculation is performed for each purchase of an individual stock, if purchased on more than one date, and the results combined together. This is the IRR portion -- the individual purchases each annualized and combined. IRR or AIRR will be different for different people/groups/clubs depending on the various purchase dates involved.
Bob Mann
On 01/14/2021 9:40 PM V Johnson via bivio.com <user*37873600001@bivio.com> wrote:
Hello All,
Any help explaining AIRR would be greatly appreciated. We own a stock that has increased significantly in value, but the AIRR shown in Bivio (757.8%) doesn't seem right. I need a straight forward, unobtuse way of explaining it to my group. The explanation provided in Bivio doesn't do the trick.
Thanks in advance,
Valerie J.
BWC