# What is your benchmark?



## Covariance (Oct 20, 2020)

As a matter of interest I would appreciate knowing what benchmark(s) you are using to assess and compare the performance of your portfolio.


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## AltaRed (Jun 8, 2009)

Norm Rothery's Asset Mixer at 35/35/15/15 or 30/40/15/15 Cdn/US/Int'l/bond, the difference being my US/Cdn allocations tend to vary between those bands. The actual benchmarks in the Asset Mixer are either: 1) TSX Composite/Wilshire 5000/MSCI EAFE/Canadian Bond, or 2) substituting S&P500 for US component. Negligible difference between all of them.... I don't care about variances in decimal points and I don't care about 5% weighting variances.

It also doesn't matter if my actual 'bond' component is HISA/GIC/short term bonds rather than a mainstream bond index that would be more along the lines of an XBB. I make a definitive decision to be short in my durations but I should measure against what would be the more mainstream index, e.g. the aggregate bond index.


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## GreatLaker (Mar 23, 2014)

This is the point where somebody asks why and says show us yours first.

My portfolio dates back to before ex-Canada (VXC & XAW) and asset allocation ETFs existed. Basic 60/40 portfolio based on references like Canadian Couch Potato and Bernstein's Four Pillars of Investing. I benchmark against 20% TSX, 20% US total market, 15% MSCI EAFE, 5% MSCI Emerging, 25% aggregate Cdn bonds and 15% short Cdn bonds. Instead of short Cdn bonds, I actually hold that portion in 5 year GIC ladder for guaranteed availability of funds even in a really bad bear market. (I'm retired with no pension so want some guaranteed income.)

Every once in a while I read about stuff like fundamental indexes, smart beta, low-vol, covered call, tech & large-cap growth stocks, crypto, cannabis, ESG and the like, but before I make portfolio changes I like to think on it for 6 to 12 months, and the urge usually passes.


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## james4beach (Nov 15, 2012)

Covariance said:


> As a matter of interest I would appreciate knowing what benchmark(s) you are using to assess and compare the performance of your portfolio.


I use a custom benchmark (link to Portfolio Visualizer but I've also calculated the benchmark in CAD going back several decades)

15% - TSX 60​15% - S&P 500​50% - all Cdn bonds​20% - gold bullion​
This is the only thing I hold myself accountable to. My actual investments are different, for example I do some Canadian stock picking, and hold individual bonds. I compare my real performance to my benchmark to see how I'm doing.

I started benchmarking myself 5 years ago, and I've found it to be very helpful. It's kind of like an "external pressure" that pushes me to be honest with myself, and to improve what I do. For example, it forces me to have to justify my stock-picking activities. Are they worthwhile, or do they cause me to lag my benchmark?

I'm finding it helpful to review full year results in particular. At the end of the year I can say, for example, my benchmark was up 11% this year (not final of course). And how did I actually do? Am I close enough to the benchmark? If I'm doing worse ... is there a good explanation for it, or do I need to seriously reconsider the part of my portfolio that is lagging?


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## OneSeat (Apr 15, 2020)

Plenty of choice so far!
- 35 - 20 - 15 - Cdn Eqty
- 35 - 20 - 15 - US Eqty
- 15 - 20 - 0 - Intl Eqty
- 15 - 40 - 50 - Bonds, GICs
- 0 - 0 - 20 - Gold

Would be interesting to see some historic $ results over say 30 years.


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## james4beach (Nov 15, 2012)

OneSeat said:


> Would be interesting to see some historic $ results over say 30 years.


The Stingy Investor Asset Mixer can get you 40 years  These figures are in CAD currency, and note that the 'Worst drop' seems to be at a yearly granularity, so it under-states the severity of the % drop _during_ the year.

I pasted an image but this comes from a spreadsheet. I'd be happy to edit and revise. Reading the thread again I see that some people are using a different country index than TSX Composite, S&P 500, and MSCI EAFE but I was lazy and that's what I input.










The third allocation (the one I use) has a track record of 26 consecutive calendar years of positive returns.


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## MarcoE (May 3, 2018)

My portfolio was (very) loosely inspired by Dalio's All Weather, but with some key differences I implemented (I swapped commodities with real estate, and I'm more heavily invested in Canadian companies than American). So the All Weather is what I'm (roughly) hoping to match for the long term. Slow, steady growth over decades and endurance through different economic seasons. But really I don't worry too much about benchmarking. What matters most to me is having a portfolio I'll stick to through thick and thin over decades.


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## AltaRed (Jun 8, 2009)

The original post is about what one is benchmarking their portfolio too, i.e. the asset allocations one uses in their IPS. The fundamentals of any portfolio are the asset allocation percentages. How one actually constructs their portfolio is a different process, e.g. couch potato, seeking alpha with active management, etc. So I am not sure why the discussion has devolved to actual portfolio construction.

For example: The US asset allocation benchmark has to be a credible broad market index, either total market as in the Wilshiire 5000 or if one wishes, the S&P500, BUT one may decide to take a flyer on the Nasdaq via QQQ or stock picking tech stocks for their US allocation. Or they decide to pursue a value ETF or a growth ETF over a broad market ETF such as VTI. Regardless of choice, they need to measure their own performance seeking alpha against the broad market index. That is one of the most important fundamentals of investment.


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## MrMatt (Dec 21, 2011)

In my mind the only thing to compare to is what you would have considered as an alternative investment, so far I'm doing much better than the couch potato over almost every time period, so yeah, I'm doing better than the alternative investment I would have chosen.

(Note I'm comparing equity positions)


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## OneSeat (Apr 15, 2020)

james4beach said:


> View attachment 20984


Thank you James - very interesting to see actual numbers (well - calculated ones).
My first reaction was - yea - sort of what I expected.
Then I calculated what each of them would mean in final dollars after your 40 years, starting with $10,000
$520,000
$430,000
$260,000.

In other words building "insurance" into a long range plan significantly reduces the end result.
But the real message to me is "don't choose a plan when young then stick to it unchanged for 40 years".
Or wording it differently "do re-analyse your plan every so often" - say every decade.


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## AltaRed (Jun 8, 2009)

It is appropriate to revisit one's IPS every decade or so because major changes do occur in one's life. Marriage and a family perhaps. A major health issue. Gain, or loss, of a civil service job with a juicy DB pension. But time alone shouldn't result in an IPS change because the IPS should anticipate progression, e.g.high equity allocation in younger years when one has the time for market recovery or to correct a major 'seeking alpha' mistake, evolving to something less volatile and less subject to black swan events as one approaches retirement, etc.


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## Covariance (Oct 20, 2020)

Thank you all for your thoughtful responses! Great input on both benchmark and allocations. I'm changing my benchmark for my passive portfolio and this is all very helpful and most appreciated.


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## MarcoE (May 3, 2018)

OneSeat said:


> My first reaction was - yea - sort of what I expected.
> Then I calculated what each of them would mean in final dollars after your 40 years, starting with $10,000
> $520,000
> $430,000
> ...


(bit off topic here, but...)

The numbers you gave are assuming a perfect scenario -- you put the money into a box and don't touch it, ideally don't even look at it, for 40 years.

But ... life isn't like that. Not for most investors, at least. There will be market crashes and recessions. People get scared. They sell in a panic. They sell at a loss. Or emergencies pop up in life that overwhelm your emergency cash fund -- you suddenly need an expensive surgery in America, or you're getting a divorce, or your kids need financial help, or you're sued, or you lose your job and can't find another one for two years, and so on. These emergencies can cost hundreds of thousands of dollars. And you'd have to tap into your investments, maybe at the very worst time.

So the actual results won't look as perfect as the numbers you gave us. In fact, a conservative portfolio might end up doing BETTER. That's because it protects you from having to sell stocks at the worst times.

Market crash leading to panic selling? Not for you, because you have enough fixed income to calm yourself down, avoid panic, and stay the course. Financial emergency that eats through your emergency fund and demands more? Well, no need to sell stocks here too. You can sell the bonds, then gradually rebuild them, leaving your stocks to keep compounding uninterrupted.

A conservative allocation gives you the most important element of investing -- endurance. It's how you can stick to it for 40 years and let it compound. An aggressive portfolio won't help without endurance. Some investors can put their investments in a box and not interrupt them for 40 years. But I suspect most people aren't like that.

If your portfolio is too aggressive, you might be forced to sell your stocks, screwing up their compounding over the decades. You might end up worse off than a conservative portfolio. Just my $0.02. You might be different.


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## james4beach (Nov 15, 2012)

I agree we're muddling up benchmarks & portfolio design, but it's kind of hard to separate the two. Any "balanced fund" for example uses a benchmark along the lines of what we're discussing. Benchmarks use common indexes, anyway.



OneSeat said:


> Thank you James - very interesting to see actual numbers (well - calculated ones).
> My first reaction was - yea - sort of what I expected.
> Then I calculated what each of them would mean in final dollars after your 40 years, starting with $10,000
> $520,000
> ...


Yes indeed there was a big difference in the total dollar result, if one bought and held for the whole 40 years. That's a big IF!



OneSeat said:


> In other words building "insurance" into a long range plan significantly reduces the end result.


A more conservative portfolio can actually result in a higher final $ value, if it helps the person stay invested as opposed to freaking out and selling during a panic (like 9/11, 2008 crash, 2010 flash crash, or COVID).

Additionally, I think it's very rare for people to actually buy and hold for 30 or 40 years. More likely, they will withdraw money at some point for various reasons. Many of my friends have been liquidating their portfolios in the last few years because they are buying homes.

The more conservative portfolios offer more flexibility, allow people to withdraw (less sequence-of-return risk) and can actually result in a larger final $ ... especially when they help an investor stay invested through market crashes.

I have a conservative allocation and didn't worry too much during the COVID crash. I have two other friends (100% equity) who sold everything during the crash. Then they bought back in a few months ago. Who do you think is doing better?


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## OneSeat (Apr 15, 2020)

This may surprise you but I agree with what both of you have said. I was simply responding to the three significantly different benchmark suggestions that had been made. Choosing one of those as a benchmark without understanding the significantly different end results is surely not appropriate.

One aspect of the Permanent Portfolio (and other similar ideas) that disturbs me is the concept that identifying specific percentages makes it a good plan but then explaining that deviations should be anticipated due to non-financial interruptions.


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## MrBlackhill (Jun 10, 2020)

OneSeat said:


> Plenty of choice so far!
> 
> 35 - 20 - 15 - Cdn Eqty
> 35 - 20 - 15 - US Eqty
> ...


You can look at this thread.









The No-Brainer Portfolio for the Risk-Averse Investor


Hi guys, You should know that at the moment I'm investing in stocks only, picking stocks and specialized ETFs. I even started a thread about all equity, low drawdown portfolios. Personally, I don't care about drawdown, but it was just to see how diversification in uncorrelated stocks could...




www.canadianmoneyforum.com





Using the Stingy Investor Asset Mixer, I get this :










That's 35% global stocks (21% S&P500, 1% TSX, 10% EAFE, 3% EM), 15% all Canadian bonds, 40% long Canadian bonds, 10% gold.

-----

My benchmark is a target CAGR over the long term. I benchmark against my top ETF picks.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> My benchmark is a target CAGR over the long term. I benchmark against my top ETF picks.


I don't understand this part. Are you saying that you've made a benchmark out of certain ETFs? Can you share the recipe for that ... for example is your benchmark 50% ETF1 + 50% ETF2 ?

Or do you mean that your benchmark is a performance number such as: 4% CAGR real return


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> I don't understand this part. Are you saying that you've made a benchmark out of certain ETFs? Can you share the recipe for that ... for example is your benchmark 50% ETF1 + 50% ETF2 ?
> 
> Or do you mean that your benchmark is a performance number such as: 4% CAGR real return


I'd say that my benchmark is to shoot for a performance similar to what I believe are the best ETFs, which are on selected on multiple "levels" of confidence.

First, I have a target CAGR (15% to 20%). But because I'm 100% equity, one year can be +40% and another year can be -5%, but if I want to know if that +40% is outperformance or if that -5% is underperformance, then I compare myself to ETFs.


For instance, my minimum performance should be at the very least at the same level of an ETF like XWD.TO which is benchmarked on a classical broad index market cap weighted MSCI World.
But then ZGQ.TO is also based on a broad index but with a factor twist. If I believe that little twist can keep outperforming XWD.TO, then my minimum performance should be at least at the same level of ZGQ.TO
But then XQQ.TO is based on the broad index NASDAQ, but highly concentrated on tech and on the US. If I believe it can keep outperforming ZGQ.TO, then my minimum performance should be at least at the same level of XQQ.TO
But then DXG.TO is an actively managed ETF with a better sector & geographic diversification than XQQ.TO... but it's actively managed. If I believe it can keep outperforming NASDAQ while being less risky due to diversification (but riskier due to concentration and active management), then my minimum performance should be at least at the same level of DXG.TO
But then there's a mix of a few ETFs on my watchlist I could combine to outperform DXG.TO while being as much diversified, so if I believe a mix of those ETFs can keep outperforming DXG.TO, then my minimum performance should be at least at the same level of that mix
At this moment, my portfolio must beat a portfolio holding 100% DXG.TO, otherwise I'd just buy 100% DXG.TO (considering that my level of confidence is high enough)

The rolling returns for broad index market cap weighted indexes for the past 15 years is somewhere between 9% and 13%. The recent returns of NASDAQ and custom ETFs are about 20%.

Therefore, I benchmark a performance goal of 15% to 20% CAGR. I like to shoot high. It may seem high, but NASDAQ's 15-year rolling average is 13% CAGR post-2002, so that minimum 15% is achievable. And then I compare myself to the ETFs I mentioned to see if the volatility of my current portfolio fits with the volatility of such ETFs. For instance, my current +42% since April (+54% unannualized XIRR) is not a big outperformance because NASDAQ has moved nearly as much. And then if next year I'm at -10% but NASDAQ is at -12%, then I'm not underperforming, I'm just following the broad volatility of the stock market.

I know so many people will say 15% CAGR is huge and unrealistic and that so many things can happen and that the market average for the past 100 years is more about 6-7%, but I prefer being optimistic and then gradually decreasing my expectations due to changing context, if needed. As I remind you, NASDAQ's 15-year rolling average is 13% CAGR post-2002. I may have skipped the dot-com bubble, but that still includes the financial crisis. Otherwise, the last decade was averaging 20% CAGR. I'm also aware that we are on certainly the greatest 20-year bull run of the past century and that it may not last. And Ì know that past performance does not guarantee future performance.


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## Observator (Jun 29, 2016)

MrBlackhill said:


> But then there's a mix of a few ETFs on my watchlist I could combine to outperform DXG.TO while being as much diversified, so if I believe a mix of those ETFs can keep outperforming DXG.TO, then my minimum performance should be at least at the same level of that mix
> At this moment, my portfolio must beat a portfolio holding 100% DXG.TO, otherwise I'd just buy 100% DXG.TO (considering that my level of confidence is high enough)


Then why not just add DXG to the mix of others ETF you think would do better or to your portofolio? Im pretty sure DXG would outperformer some years some ot the others ETF. Same thing with your portofolio I guest. Some years it will outperform and some years not. But in average, it would provide good results. How long would you analyse it and wait before buying it 2 more years, 5 more years 10 years ?

Im not a stock picker too. My benchmark is XWD in my 100% equities portofolio. I own a mix of ETF which I think would provide good global results in the long run and beat XWD,


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## MrBlackhill (Jun 10, 2020)

Observator said:


> Then why not just add DXG to the mix of others ETF you think would do better or to your portofolio? Im pretty sure DXG would outperformer some years some ot the others ETF. Same thing with your portofolio I guest. Some years it will outperform and some years not. But in average, it would provide good results. How long would you analyse it and wait before buying it 2 more years, 5 more years 10 years ?


I plan on buying a mix of ETFs, but I'm wondering if that mix of ETFs will end up outperforming DXG on the long term (same questions are asked when you add stock picks to boost the return of an index ETF but end up doing worse). I'll buy multiple ETFs simply to reduce the concentrated risk of buying only one actively managed ETF and also to add exposure to what's missing in DXG. And, yes, to try to beat DXG. I believe one could be 100% XWD or 100% ZGQ, but I'm not sure one should go 100% DXG. But that's very odd to say, because I'm not a portfolio manager and my portfolio is currently only 20 stocks, so why would I have less confidence in an actively managed ETF of 25 diversified holdings?

I analyse those ETFs by looking at their holdings, diversification and how the holdings evolve through time. I'm ready to buy them even if they've been there for only 2 years.


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## Observator (Jun 29, 2016)

MrBlackhill said:


> I plan on buying a mix of ETFs, but I'm wondering if that mix of ETFs will end up outperforming DXG on the long term (same questions are asked when you add stock picks to boost the return of an index ETF but end up doing worse). I'll buy multiple ETFs simply to reduce the concentrated risk of buying only one actively managed ETF and also to add exposure to what's missing in DXG. And, yes, to try to beat DXG. I believe one could be 100% XWD or 100% ZGQ, but I'm not sure one should go 100% DXG. But that's very odd to say, because I'm not a portfolio manager and my portfolio is currently only 20 stocks, so why would I have less confidence in an actively managed ETF of 25 diversified holdings?
> 
> I analyse those ETFs by looking at their holdings, diversification and how the holdings evolve through time. I'm ready to buy them even if they've been there for only 2 years.


I would not be inclined to go 100% with DXG too. One thing you could do is own it with others ETF you look at. Since its an actively managed ETF, I think some years ahed might less good than the 3 past, or maybe not. Maybe the others ETF could do well. Since it is actively managed so we dont know. It could has an average year sometime and explode the nex year. One thing I look at too, is how these ETF react in a major drawdown.

I own DXG in one of my portofolio for about 25 % of it. I have others ETF I like too. I also own ZGQ that you mentionned. I also add some ETHI you mentionned month ago.


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## MrBlackhill (Jun 10, 2020)

Observator said:


> I would not be inclined to go 100% with DXG too. One thing you could do is own it with others ETF you look at. Since its an actively managed ETF, I think some years ahed might less good than the 3 past, or maybe not. Maybe the others ETF could do well. Since it is actively managed so we dont know. It could has an average year sometime and explode the nex year. One thing I look at too, is how these ETF react in a major drawdown.


Yes, that's my plan. I either buy the ETF or pick what I believe to be the best stocks inside those ETFs.

My sources of ideas are :

DXG.TO
ZGQ.TO
HERO.TO
EDGE.TO
FOUR.TO
ETHI.TO
ARKK
HBGD.TO
XIT.TO
TEC.TO
FHQ.TO
ZCH.TO
COMM.TO
ZUT.TO
ZUH.TO
XST.TO
ZIN.TO
XCD.TO


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## like_to_retire (Oct 9, 2016)

MrBlackhill said:


> First, I have a target CAGR (15% to 20%).


Wow, 15% to 20% is quite impressive. I'm conservative, so I can never attain that CAGR.

Interesting to see that everyone has their own benchmark (if that's the right word) and their own method of comparison.

My asset allocation is 50:50

50% is all GIC ladders, so there's no real reason to make any comparisons or evaluations in their regard. They're GIC's - full stop.

The other 50% is all Canadian stocks - about 24 of them that equally represent 8 sectors in the Canadian market (3 stocks per sector). 
Most of those stocks are blue chip and live in the S&P/TSX60, so I have always been inclined to use XIU as my benchmark that I try and beat. 

But about three of those 24 stocks aren't in the TSX60 and only live in the TSX Composite, so I ofttimes use the TSX Composite as my benchmark (XIC as a proxy). 

Either way, graphing XIU vs XIC is a bit of a mirror over the long term, so I doubt it really matters which one I choose.

In that regard, it sure ain't too hard to beat those benchmarks. I'm usually around 10.5% CAGR over ten years, while XIC/XIU is around 7.5% CAGR. Over time you pull further and further away from the index.

ltr


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## MrBlackhill (Jun 10, 2020)

like_to_retire said:


> Wow, 15% to 20% is quite impressive


It'll be impressive only if I achieve it, but I strongly believe it is realistic. Well, it was realistic in the past 20 years. Maybe the next 20 years won't allow such returns.


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## james4beach (Nov 15, 2012)

This is just my opinion, but I think you'll have an easier time investing in the long term if you decide on a fixed, index-based benchmark.

This whole thing (investing) is a game that really messes with your head, and index-based benchmarks are an important tool to counteract that.

I realize you will be picking other stocks and ETFs for your actual investments, but even if you just decide to use the S&P 500 index as a benchmark for yourself I think it would likely help you over the long term.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> This whole thing (investing) is a game that really messes with your head


I like to work on my psych.

I'm a skydiver and extreme activities lover. That kind of emotion swing thrills me.

Being fearful and conservative does not allow to grasp opportunities.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> I like to work on my psych.
> 
> I'm a skydiver and extreme activities lover. That kind of emotion swing thrills me.
> 
> Being fearful and conservative does not allow to grasp opportunities.


All fine, just beware, Wall Street has an extremely well tuned machinery to exploit people, especially people who are novices, and overconfident risk-takers. I'm not trying to be insulting, I just mean that you are in a competitive marketplace. These guys (Goldman Sachs etc) are your opponents -- your enemy.

I'm also a novice, and I'm also overconfident. Just look at my arrogant posts around here. But I know that I'm overconfident, and I know that Wall Street is trying to exploit me. That at least protects me somewhat.

One reason passive indexing and traditional asset allocation works so well is that it deprives Wall Street of that trading opportunity.

Why do you think their men are always on CNBC and BNN, offering juicy ideas and begging people to trade? That's the game. Just beware, they are your opponents in the marketplace.


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## MrMatt (Dec 21, 2011)

I'm not overconfident, I know I don't know everything.

I fully expect to be somewhat wrong on my picks. I've made some pretty brutal investments.

However I also don't buy stuff I don't understand, (ie Google, Amazon & Tesla) 
Though when situations change, I will buy (Google & Amazon, but still not Tesla)

As far as benchmark, it really matters what the purpose is.
I think if it's to evaluate your stock picking, compare to a comparable index.

The way I play the wall street game is play something else. 

I don't have the same investment objectives as them. I do get distracted by the bright and shiny things, but I don't think I do this quite as bad as the average investor.

I'm not an unemotional number cruncher, but I try not to be too swayed by the investment media.
I was really keen on water heaters for a while, but the valuation was a bit too high. Great business though, one that you don't hear about much too.


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## Observator (Jun 29, 2016)

MrBlackhill said:


> Yes, that's my plan. I either buy the ETF or pick what I believe to be the best stocks inside those ETFs.
> 
> My sources of ideas are :
> 
> ...


Nice. Hope you find a mix that suits you and and in which you are confident to achieve your goal if you go that way. One of my portofolio is :

DXG, ZGQ, ETHI, CMAG and FGGE.


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## MrBlackhill (Jun 10, 2020)

I would like to bump this thread up with a slightly different question... *How do you benchmark?*

Context of my question

I started stock-picking on April 15, 2020, just for fun
If I look at the performance on StockCharts for XQQ from April 15, 2020 to January 11, 2021, I get a beautiful round +47.00% after those 9 months
My portfolio total value is up +43.75% after those 9 months, which is less
But those values doesn't take into account the cashflows... if all my cashflows went into XQQ, my average cost would have increased, therefore decreasing that +47.00% from April 15, 2020
In fact, if I had invested my cashflow into XQQ instead of my picks, my portfolio total value would be *at least 4% less*, all commissions included
My current de-annualized money-weighted rate of return (XIRR de-annualized) is *+55.64%*, all commissions included, whereas it would've been about *+47.61%* in XQQ, so I guess that gives you the real difference in performance
Therefore, if I want to know if I'm doing better with my picks compared to an ETF for instance, I have to retrace how many shares I would've bought from each cashflow and how much they would be worth today... Seems complex on the long run (but it sure can be automated using Google Sheets)


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## Covariance (Oct 20, 2020)

Part of being a stock picker and active portfolio manager is the (re)deployment of cash (from dividends and exits). So take your starting value and ending value and compare to XQQ (plus distributions)?


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## MrBlackhill (Jun 10, 2020)

Covariance said:


> Part of being a stock picker and active portfolio manager is the (re)deployment of cash (from dividends and exits). So take your starting value and ending value and compare to XQQ (plus distributions)?


You get the XIRR from the dates and amount of all the buys as negative cashflows, all the sells as positive cashflows, all the dividends as positive cashflows and the current market value of the holdings as a positive value.

You can't simplify with starting value and ending value.


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## ddivadius (Apr 28, 2017)

Since I am very close to retirement, moving forward just going to benchmark vs VBAL. Is simple better than complex will be the test for me i think.


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## Covariance (Oct 20, 2020)

MrBlackhill said:


> You get the XIRR from the dates and amount of all the buys as negative cashflows, all the sells as positive cashflows, all the dividends as positive cashflows and the current market value of the holdings as a positive value.


Interesting analysis. I thought you were trying to compare two portfolios.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> I would like to bump this thread up with a slightly different question... *How do you benchmark?*


Good question. The cash flows really do complicate the picture. My workaround to this is that I hold both index ETFs (passive) and a couple stock-picking portfolios (active strategies).

When I have new cashflows at arbitrary times I try to always buy index ETFs. For example this month, I bought some XIU, ZSP, XBB which solves the problem of benchmarking. Nothing to benchmark 

Then there are my active stock-picking portfolios. I keep these as constant as I can (no cash flows in & out) for longer time spans, which simplifies benchmarking. The second advantage of this is that over the years, I've found that the less I touch my active portfolios, the better I do! So being "hands off" for a full year encourages better portfolio management, *and* makes performance calculations easier.

I make portfolio adjustments to my active strategies on a schedule, once a year. For example my 5-pack gets one adjustment either in Dec or Jan which is also when I add or remove cash. Note how this simplifies the performance calculations. Here's a timeline:

[ adjust portfolio ] ....12 mo........ [ adjust portfolio, add $ ] ....12 mo...... [ adjust portfolio, remove $ ]

Since I'm doing adjustment and buy/sells only once a year, I can now calculate performance in between each. The performance calculations are therefore unaffected by the cashflows in or out.

Very long-term performance is easy! Because the discontinuity is so brief, and we know total returns between each adjustment date, you can just multiply the total returns together. I have 4 years of data for my stock picking portfolios and no complex spreadsheets needed.

Example 1: let's say I want to add money to growth/momentum stock-picking portfolio, I would wait until my next portfolio adjustment date. Then (all on the same day) I'd record the "ending value", do the buy/sells, and record the NEW "starting value" immediately.

Example 2: say I want to add money to my investment immediately, which is off-schedule. I would buy more of a passive index ETF position, so that benchmarking is not required.


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## james4beach (Nov 15, 2012)

Perhaps I should add that with my growth/momentum active portfolio (likely similar to your efforts @MrBlackhill ) I was doing portfolio adjustments at 6 month intervals, and that was pretty easy as well. This has really simplified benchmarking for me.

If you really want to adjust it more frequently, there's no reason you can't do the same thing at 3 month intervals. Just make sure you accomplish all your trades on the same day. I also use stockcharts.com to calculate the % total return of the relevant benchmark index ETF. There is a very *slight imprecision* if stockcharts.com is using the day end value.

One way to tackle that complication is to time your buys/sells on portfolio adjustment day so that they are very close to the end of the trading day. This makes your portfolio values (starting, ending) align to the index ETF's end of day value. This may not be an issue if stockcharts uses real-time prices, but I don't know if that's the case.


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