Insights and opinions from an internationally recognized authority on investment performance measurement
Wednesday, May 12, 2010
Is the math REALLY that difficult?
I'm conducting a GIPS(R) (Global Investment Performance Standards) verification and encountered something somewhat unusual. The client uses a well known software package to calculate their returns and use a daily method. Here are the approximate details for one day that is behind this post:
Beginning market value = $327,000
Cash flow = -$337,000
Ending market value = $940.
Obviously, the portfolio grew in value during the day which allowed them to distribute more money than they started the day with. Okay, so what return does the system yield? Actually it doesn't provide ANY return and simply indicates in a footnote that a return isn't possible. BUT, why not? We can employ a simple Modified Dietz formula:
which will yield a return of 3.35%. Is it really that hard? I don't think so. Perhaps you would think so at first glance, but it really isn't.
is an internationally recognized authority on investment performance measurement. He's the founder and Chief Executive Officer of The Spaulding Group, Inc. (www.SpauldingGrp.com), and founder and publisher of The Journal of Performance Measurement. He's the author, contributing author, and co-editor of several investment books. He's actively involved in the investment performance industry, serving on numerous committees and working groups.
Dave earned his BA in Mathematics from Temple University, his MS in Systems Management from the University of Southern California, an MBA in Finance from the University of Baltimore, and a doctorate in Finance and International Economics from Pace University.
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