Why not mwror
answer given is twror
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In my opinion: Maybe because of the buy and hold strategy (paise withdraw nahi hore) and fixed payment hai random nahi.
But according to me also it should be MWROR.
ig its because they have asked the portfolio performance and not the investors performance, had it been asked specifically ki which measure would best measure the investor performance, ig MWROR would have been the answer
But they’ve said investor controls the cash inflow and outflow
So shoudnt it be mwror
i understand your doubt,
think of it aise, there is a portfolio managed by you for your client in which the client has the power to add or remove funds, when we calculate your performance we wont use mwror right? yahi pe agar we were asked to find the investors performance we would have used mwror right?
vaise hi in this case as well the client periodically adds funds, and we are asked to find the portfolios performance, not the investors, agar we were asked to calculate the performance of investors, mwror would have been the choice
Please don’t confuse it. It is always “PORTFOLIO PERFORMANCE” that is evaluated. It is evaluated basis two criteria –
1) time + selection skills (MWROR)
2) only selection skills (TWROR)
Generally, PM run Portfolio gets evaluated by TWROR because he doesn’t have control over time.
Investor run portfolio gets evaluated by MWROR as he has both under his control.
My take,
In this MWROR fits the bill. Any ways, we don’t know if the amount invested every quarter or no. of shares bought every quarter is same or not, hence it doesn’t support arithmetic / geometric mean theory. (Question is silent on this aspect)
So its assumed that they are asking for the portfolio manager and not the investor?
Should we assume this in the exam also incase it comes?
in the question its clearly written, performance of the portfolio
for the exam i would suggest you look out for when they ask specifically for investor in a case where it conflicts with portfolio manager or the portfolio itself
from my opinion mwror is right just because it is quartelry and twror does not effect according to time whether it is yearly , quartely or anyhting else. so mwror is just becuase the timing effect is also there
i hope i am right ..
It should be geometric mean or twror.
Reason 1. We do mwror when there is inflow and outflow of funds from the portfolio.
In the question it’s clearly mentioned that investor had buy and hold strategy.
Reason 2. Here there are no outflow of funds and the inflows into the portfolio are pre- fixed at regular intervals i.e quarterly deposits irrespective of how the fund performed therefore he is not controlling or changing his funds amount or timing according to his own wish. It is prefixed like you would do in a sip of mutual fund. Hence we use twror or geometric mean to calculate the return.
Hope it clarifies.
This explanation doesn’t seem correct due to the following reasons:
a) there is no such precondition in MWROR that there has to be inflow & outflow. In any topic we pick, if we don’t have any value for any variable, we take zero. We don’t dump the methodology. So, why here?
b) secondly, in geometric / arthematic mean, either the cost paid every quarter (numerator) / no. of shares (denominator) needs to be same. Nowhere, the question says that the investor was paying equal amount or buying equal no. of shares. He might be changing the amount invested or no. of shares buy. So, according to me geometric / arthematic can not be the answer.
Hence, my vote goes to MWROR. It might every criteria to be evaluated by MWROR.
Sir in his videos has mentioned that in MWROR which is also IRR there is a significance of when the amounts are put in and out of the system.
Cash inflows and outflows.
Here in the question it is mentioned buy and hold. He will not put in more more money or take out more money. So mwror or irr cannot be used.
The answer is TWROR or geometric mean. You can go to the DCF videos by sir and re-watch if my explanation doesn’t help.
Thankyou.
According to me mwror is correct.
The reason I felt TWROR is correct is because since it is buy and hold he does not consider the timing of buying. He is just doing every quarter ( even if he changes the amounts) he doesn’t care about it. He will buy irrespective of whatever happens every quarter). Speaking about the buy and hold on a perspective offered by me I feel in buy and hold we just see what is the price and how much it became. We don’t introspect regarding how much we will invest in an up or down market. In Hindi context Dekh 20 rs dale thei 120 hogaye ( we discount the effect of our timing).
The answer is TWROR because it’s stated that it’s a Buy and Hold Strategy. We’re not selling at any time. If you take an example also of quarterly Cash ouflows, we can’t calculate IRR, it shows an ERROR.