Why I present results the way I do?

Investment Analysis Clubs Saul’s Investing Discussions
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Someone asked me off board why I present results as 97% or 101% instead of up 1% or down 3% ? I thought that that’s a good question, and that I should share my response with the board. Here are my thoughts:

I just figure I start at 100% and then figure where I am from there. That’s the way I’ve always done it.

I think it’s easier to visualize. For example, if you say A is up 1% on the year, and B is up 2%, it sounds as if B has done doubly as well and is beating the pants off A, but if you say A has grown to 101% since the beginning of the year, and B has grown to 102%, it’s gives you a much truer picture. Just how I think of it.

For example, lets they both started out with a hundred thousand dollars, and at the end of the year A has a hundred and one thousand, and B has a hundred and two thousand. Presenting the results as +1.0% and +2.0% gives the visual image that B did twice as well as A, that he did 100% better. But he didn’t do 100% better! He just did 1% better, and if you present the results as 101% and 102% you see that the difference between them is just noise in the system.

I hope that this has proved interesting.

Saul

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Saul,
The first time I read your results posted as 97% of instead of down 3% I too was puzzled as to why you would report your returns this way. Then you explained why and it gave me a new way to think. That’s why so many investors love your board, because you and your fellow posters help us to think in new and better ways.

Kindest Regards,
Steve

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Presenting the results as +1.0% and +2.0% gives the visual image that B did twice as well as A, that he did 100% better. But he didn’t do 100% better! He just did 1% better, and if you present the results as 101% and 102% you see that the difference between them is just noise in the system.

On a $1M portfolio, A earned $10,000 while B earned $20,000 in the same time period. That sure seems twice as good to me. Compare someone who earns 9% per year for 10 years versus someone who earns 10% per year. You may say that’s only 1% better, but after a decade, that 1% difference is over $226K, or over 22% of the original portfolio. This is why people in mutual funds need to watch the expense fees.

The problem I have with the portfolio size percentage is the same problem I have with “baggers.” All around Fooldom people seem to love talking about how many bags they’ve earned. But, a stock going from a 5 bagger to a 10 bagger is only a double. Far better to have two consecutive 4 baggers than a single 10 bagger. So rate of return, especially annualized, is, for me, the best metric.

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On a $1M portfolio, A earned $10,000 while B earned $20,000 in the same time period. That sure seems twice as good to me.

Sorry, Smorgasbord, but on a $1,000,000 portfolio, $10,000 difference is still just one percent, and still just noise in the system! Look, say one of them earned 15% and one earned 16%. That would still be $10,000 difference. Does that still look twice as good to you? It’s less than 1% better. That’s the point that I was making.

The problem I have with the portfolio size percentage is the same problem I have with “baggers.” All around Fooldom people seem to love talking about how many bags they’ve earned. But, a stock going from a 5 bagger to a 10 bagger is only a double.

But here you are arguing the opposite side, and actually agreeing with me (and what I always say about baggers). Going from a 9 bagger to a 10 bagger is only up 11%. Going from a 1-bagger to a 2-bagger is doubling. It’s the rate of return that matters.

And the difference between up 1% and up 2% is not a double! It’s just 1% more, just noise in the machine, and probably within the range of error (to use a term from scientific studies). It’s a trivial difference compared to going from a 1-bagger to a 2-bagger.

Saul

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I guess that what I’m trying to say is that 1% difference is just 1% difference, and that it doesn’t matter whether it’s the difference between 101% and 102%, or between 115% and 116%, or between 130% and 131%.

And sure you can write the difference between 101% and 102% as plus 1% and plus 2%, and make it look like it’s double, but it’s not. It’s no different than the difference between plus 40% and plus 41%. It’s plus 1% more.

And sure you can compound it out over 10 years and it will come out to be 13 or 14 or 15%, but so what? For this year it’s just a 1% difference and small enough to be within the range of error.

And sure, you can take it a 1% of a million dollars and make it look like a bunch of money ($10,000), but so what? If you imagined you were investing a billion dollars, and made 0.01% profit for the year, it would be $100,000! Wow! A lot of money! But you still made just one one hundredth of one percent!

So, to return to what I was saying, 1% difference is 1% difference, not double! …But hey, that’s just the way I see it, and if you want to look at it as a double, go for it.

Best, and sorry for the long ramble.

Saul

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On a $1M portfolio, A earned $10,000 while B earned $20,000 in the same time period. That sure seems twice as good to me.

For one last nail in the coffin, on any ordinary market day, one portfolio could easily do 1% better than another portfolio, depending on the stocks in them. So say we ran one day more and A was up 0.6% and B was down 0.5%, and now, suddenly, A is ahead of B. How can you say B is twice as good as A over the course of a year, if A could be ahead of B the next day, on an ordinary day? That’s what I mean by saying 1% difference is just noise in the machine, static, random difference, within the range of error, etc, and no way is 102% twice as good as 101%, any more than 142% is twice as good as 141%. Just saying…

Saul

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Happy 10yr+ anniversary Saul! Hope you’ve de-stressed now over the 1% business and you’re ready for some 4th of July fireworks!
Ant

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That’s what I mean by saying 1% difference is just noise in the machine, static, random difference, within the range of error, etc,

The flip side of this is “99% free.”

Yoo Hoo chocolate flavored drink used to advertise that it was 99% cholesterol free. This means it could be 1% cholesterol, which would be a TON of cholesterol. For example, there are 9 mg of cholesterol in 8 g of bacon (google it to see evidence, if you care), which is about 1%. So basically BACON is 99% cholesterol free.

And I will be making burgers for July 4 that are 99% Vegan (not from the star system around Vega, but the dietary kind of Vegan). After all, they will incorporate the meat from only one species of animal out of the more than 5,400 species of mammals, 9500 species of reptile and 30,000 species of fish. They are bison-free, tiger-free, iguana-free . . . etc. In fact, those burgers will be about 99.999% vegan.

Or, you have cereal that advertises itself as being 99% more vitamin C – but 99% more than what? Dirt?

So I am 100% anti-percentage.

Instead of using percentages, I prefer pie charts, which, being circles, can also be thought of as pi charts.

And I will reinforce this preference by eating a reified pie chart (apple) for the Fourth.

Rich

BIDB
Formerly ChanceElder Dancer, A Drumlin Daisy, etc., etc.

Who popped by this board after a long (and strongly requested) absence to make one and (he promises) only one post here, because he actually thinks Saul makes a lot of sense on this issue . . . .

And who now will return to his new investing discipline of index funds and volatility trades, freeing up time for more important things, list available upon request (by email, since he will not look at this board again until December) . . . .

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Happy 10yr+ anniversary Saul!

Thanks Ant, I didn’t notice the balloons.
Saul

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But here you are arguing the opposite side, and actually agreeing with me (and what I always say about baggers).

Hey, well, I like to think we’re on the same side. But numerically speaking your terminology is more in line with bagger-speak since both:
a) Are based on portfolio start. (start=100% for you and 1-bagger in bagger-speak)
b) Don’t incorporate the time it took to get there

Going from a 9 bagger to a 10 bagger is only up 11%.

Whoa - why are you switching terminology? I’d say it’s up only 11% - you’d say it’s 111%. That is what you’re describing here, right?

It’s the rate of return that matters.

Have you looked up “Rate of Return” on Wikipedia (https://en.wikipedia.org/wiki/Rate_of_return) ? It’s a profit on an investment over a period of time, expressed as a proportion of the original investment.

With that calculation you say “Up 31%” not “At 131%”

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a) Are based on portfolio start. (start=100% for you and 1-bagger in bagger-speak)

You guys really are talking the same language when it comes to baggers. Smorg, you are conflating one thing. Saul is by no means suggesting you start out with a 1-bagger. The starting point, or you can think of it as a cost basis, is 100%. Also, consider that 100% equals 1.00 when expressed numerically. That is all Saul is saying. We are starting at 1 and measuring from there.

You are both saying you don’t like the obsessive focus on baggers. You stated going from a 5 to a 10 bagger is only a double and you are right. That is the same thing Saul is saying and both of you are suggesting that there may be better places for money once an investment has grown that much. Additionally, the size of the company at that point may prohibit such rapid growth in the future.

I think the math and simple expression of numbers is causing confusion here and it shouldn’t. You two are in agreement regarding the philosophy on baggers.

A.J.

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And now I seem to have confused bagger terminology as there really is no 1 bagger. A 2 bagger is a 100% gain. A 1 bagger really is your cost basis.

So I guess in bagger parlance, you are correct that Saul is starting as a 1-bagger, but then again so does everyone else.

Sorry to add to any the conundrum…

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And now I seem to have confused bagger terminology as there really is no 1 bagger.

A one bagger is getting to first base. Your bagger starting point is the batter’s box.

https://www.google.com/search?q=batter’s+box&num=50&…

The problem with baggers is that there is no time reference

http://softwaretimes.com/pics/ten-baggers.png

Denny Schlesinger

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