What is a realistic return on value investing?

[dzwm87]

Let's say you have $500 when you start work, every year you save $1000, and make 0% on your investments, after 10 years you then have 'compounded' at 35%.

You have to measure your portfolio like a unit trust i.e. you calculate NAV per unit. Adding money increases the number of units, but doesn't change NAV. So in this case, after 10 years your NAV remains the same as when you started i.e. IRR is zero.

There was an infamous case in the US, where the investment club by some women in Beardstown, Illinois supposedly compounded at 23.4% per year from 1983 to 1994, against 14.9% for the S&P during this period. They got lots of media attention and published a best-seller. Later on it was discovered they had not accounted for injection of funds, and when adjusted for this, their IRR was only 9.1%, way behind the S&P. Price Waterhouse (now PWC) confirmed the 9.1% figure. So you see, you absolutely have to adjust for funds injected (or withdrawn).

People who want to compare returns have to make sure they are comparing apples to apples. It took me a while to figure out how to compute NAV too. Best done with a spreadsheet.

Realise there was a thread talking on the same topic - http://www.valuebuddies.com/thread-1268.html