TWR, Transactions, and Graph

[ballardian]

Hi,

My brokeer is providing me with a performance graph / annulaized return that is very different than my own return numbers in FM and I'm trying to figure out 'why'.

I generally use the Value-Cost graph with historical cost and ROI as yield as my primary view. This returns an annulized 6.9% return gph while the broker statemenet says 11.41%. Clearly different.

I notied they were using TWR so I pulled a TWR report which only shows the time frames so I pulled a custom report with TWR since incept and between 2 dates (the 2 dates b/c the broker report starts a few months after account inception and ends on the day he ran it a few days ago). This gets closer with 11.9% vs 11.41% for the correct dates.

So here is my questions about this process:

1) When I change the yield calculations to TWR on the graph it comes up gph as N/A - what could be causing it to be N/A here but in the reports gives me a number? Interperlation is set to 3 days.

EDIT: I just ran the graph starting on the same date as the report and I get a number there and if I change the report date to 'earliest transaction date' then it goes N/A. So they seem to behave the same way though why does 'TWR since inception' return a number on different date in the report? And what do I need filled in to give me a TWR for 'since earliest transaction' on my graph?

2) Does cost basis information affect TWR And/or ROI calcuations? -- I have a few issues that have merged, split, and spun off that I may have recorded differently. Example, one issue right now says loss is -1600$ after cost basis was passed from issue to issue but the broker reports - +$150 or something. Does this at all come into play in the portfolio level calculations?

3) There are a fair amount of N/A for yield in ROI and TWR reports for individual issues. Does that impact portfolio level calculations for ROI and TWR yield? I assume not but would like to know if I need to resolve it.

Thanks

[Mark]

Hi ballardian,

1) If you're getting N/A in a report or graph, and want to know why, look in the log file. See "Help / Logs / Graphs/Report Calculation...".

2) When you invested affects ROI. TWR factors out when you add/remove money from something, so it is only time-weighted. For a discussion of the differences between TWR and ROI, please read this documentation.

3) No, if you get an N/A at an investment level, it is still included in portfolio calculations.

[ballardian]

Thanks Mark for that.

1) The log reads:

Unable to calculate TWR yield for sub-portfolio "PORTFOLIO" for dates 2/20/2001 - 3/10/2021. (Calculation failed due to <= 0 value: 2/20/2001 -> 0.00 : 2/20/2001 -> 0.00).

The one thing I noticed if I increase the start day by one day it works. Day 1 I had only cash and Day 2 I actually buy my first investment. There is a price for day 1 in the cash position.And the value report shows the cash as not zero.

What am I not understanding?

2) I had read the documentation and I guess I'm still not clear if cost basis is the same as cash flow in regards to merged issues in ROI? As the money went into Issue 1 then Issue 2 had no cash go into it but the cost basis moved with it the way I've recorded it. Would ROI be different if the cost basis didn't go with it?

3) Thank you for that confirmation.

[Mark]

Hi ballardian,

1) For TWR calculations, you must have a positive value over the whole yield term. That message is saying on 2/20/2001 the value of the sub-portfolio was 0, thus a yield can't be calculated for any yield term that includes this date with a 0 value. If you're not expecting the value to be 0 on this date, run a Portfolio Value report for this date.

2) ROI looks at the price you paid for things. TWR does not. TWR is looking at the underlying performance of the object, not when/how you timed buying it. ROI is the return you earned on your money, and factors in when/how you bought/sold it. ROI is money weighted, so if you have more money invested during a certain time, the performance is more heavily weighted in the overall yield from that time period.

If you add/remove new money to/from a portfolio, this won't affect TWR, but it will affect ROI.

The idea of TWR is to look at the object's performance. The idea of ROI is to look at your money's performance. If you don't have any external contributions/withdrawals to/from that object, the 2 figures will be the same. I use the term "object", because this could be an investment, a sub-portfolio, a category, etc...

[ballardian]

Hi Mark,

1) When I run the value report for this sub-portfolio on 2/20/2001 it reports a value of $1200. Which is what confuses me about that error message b/c I expected 2/20/2001 to be $0.

If I run the report or graph from 2/21/2001 it works just fine even though no new money has been moved into the account.

I have 3 sub portfolios that this behavior is the same for all them. The date of earliest transaction is cash moving into the account (confirmed with the Value report) and on that date TWR returns N/A. If I move it to the next day TWR works just fine.

I feel like I am missing something.


2) Thanks. So cost basis transfered from other assets doesn't affect ROI b/c the money was moved into positions at the same time and no extra cash moved out. Cost basis is just accounting notes at that point not actual money movement at that point. Thank you for clarifying that for me.

[Mark]

Hi ballardian,

1) Which graph/report are you using where you see N/A? What is the date range? You deposited the first money on 2/20/21?

[ballardian]

For graphs I'm using the Portfolio-Cost Value graph primarily. historical cost GPH is N/A and if I move it a day (2/21/2001) it gives me a number.

Report I've been using a custom report with TWR (between), TWR (inception), ROI (between), and ROI (inception). TWR (between) reports N/A on date of first transaction. All other fields give me %s. Move start date one day later to 2/21/2001 and TWR (between) also gives me accurate data.

The date range I'm selection in all cases in 'Earliest Transaction To Date' today that is 2/20/2001 to 3/11/2021.

And yes was money was deposited in 2/20/2001 and the Value report for this account reflects the cash in the account that day accurately.

[Mark]

Hi ballardian,

Thanks. What is happening is that when you calculation from 2/20/21 (Date of first transaction), the yield term is including that first day. The day starts at $0, but ends with some non-zero value. Changing the starting point of the yield term one day later allows it to have a non-zero value over the whole term, including the starting point. For investments, FM will calculate a TWR in this case, using share price, but for objects of multiple investments, the value must be > 0 for all dates, including on the start of the starting date (which is the same as the close of the prior date, 2/19/21, in this example).

[ballardian]

Ah ok. Thank you.

So basically the preset date range 'From Earliest Transaction' will always have this problem with TWR as the beginning of the day before any transaction will always be 0.

Thank you for explaining that.