Birth Of A New ThumbTack Fund: GFH Fund

I’ve spent the past several weeks since I’m back, trying to figure out the various methodologies, and what is the most commonly used (amongst professional money managers, that is) ways to track returns.

Yes, it sounds trivial, but I’ve been taking it really seriously. I’d explain why later.

As with the bulk of my DD done these days, I’m kinda lazy to type out my thought processes and findings, BUT I’d share my thoughts really briefly.

Basically, I’ve come to realized that the Time Weighted Returns (TWR) and the Money Weighted Returns (MWR) can be drastically different for the same portfolio. Interactive Brokers calculates it automatically for me, and that’s how I realized it.

Check this out:


Both these sets of returns are taken at the same time.

My global portfolio shows an annualized MWR of 14.42%, but only an annualized TWR of 10.73%.

So, which one is it? Which one should I really utilize to track returns.

For some reason, my TWR always tends to be lower than the MWR (as far as I’ve observed).

I still haven’t really figured out what that means.

Anyhow, I won’t spend time going into detail of how to calculate each. Most people won’t bother anyway.

The difference is certainly significant, and I’ve previously erroneously thought that the difference wouldn’t quite matter. That it’s most likely in the decimal spots.

But it is significant. I’ve observed, on occasion, a difference of almost 9% once.

I’d share a comment by “kc2024” on this, and a link to a spreadsheet he created to test out TWR.

Now, for the uninitiated, all this is probably ancient Greek to you. And in all fairness, I think for the retail investor without too large a portfolio, it’s… not very important to figure it out.

But once your portfolio crosses the 7 digits mark, I think it’s actually significant.

I mean, a 10% difference between TWR and MWR would mean a difference in quantum of $100,000 in a single year! (OK, roughly. I know there’s the effect of compounding, and there’s also the effect of the time duration of the capital)

Let me illustrate all this with an example.

Bill has $100k sitting in his bank account at the start of the year, that he can use to invest.

In Feb, he bought 10,000 shares of company ABC at $2, and sold the shares in April at $3. In May, he received a cash windfall and decided to set aside $50k for future investments. In Sept, he bought 10,000 shares of company DEF at $5, and sold the shares in Oct at $6. That same month, he took out $20k from his investment fund to buy a car. In Nov, he bought 10,000 shares of company GHI at $2, and they’re worth $3 as of Dec.

How would you calculate his ROI?

Method 1:

This is what I suspect most retail investors would do:

Total capital invested in ABC, DEF and GHI: $90,000

Total capital from divestments + value of 10,000 shares of GHI as of Dec: $120,000

ROI = (120,000 – 90,000) / 90,000 x 100% = 33.33%

Method 2 (Money Weighted Returns):

ROI = 23.56%

Method 3 (Time Weighted Returns):

ROI = (1.25 – 1.0) / 1.0 X 100% = 25%

As we can see…. the ROI figures are very much different.

(OK, this is not a great example. Not sure why MWR and TWR is quite close here, my numbers given in IB are always very far apart)

In any case, the time value of money is mainly what causes the discrepancy between method 1 and the other 2.

We can also see that using TWR is incredibly complex if one has multiple cash injections or withdrawals. Also, it requires the calculation of “units” issued each time there’s a change in your portfolio. And that is really such a big hassle such that it renders TWR mostly impractical.

At this point, most people would be saying…. who cares?!

Well, I do actually, cos I want to know which benchmark to use so that if I’m comparing against an index, or against a money manager, I know it’s a like for like comparison.

Most money managers are judged by TWR. (Yes, the complex one)

Now, the real reason why I’ve been spending all that time trying to figure TWR out… is cos of a new fund that I get to play around with – let’s just call it the GFH Fund. I needed to figure the way returns would be tabulated, as that affects… well, my personal remuneration. Something very important isn’t it?

GFH Fund will be seeded by an investment holding company, owned by yours truly, and some friends. I get full investing autonomy with regard to the fund. Well, frankly, the other folks don’t even care (unless I start losing too much money!)

There’s no real mandate to bother about, but logically, I’d be sticking to what I’ve been doing. No reinventing the wheel here. So it’d be mainly a long/short global equities fund.

And as I type this right now, GFH fund is finally underway.

I’ve just seeded it with SGD 100K, with the remaining SGD 400K coming in, probably by the end of the month.

For GFH, these are the stuff that I’ve looked at in the previous couple of months. I wrote this, a few weeks back, don’t think too much has changed:

And since I’m really too busy to start posting long investing thesis here, I figured I’d just take the short cut and post my transactions here. Perhaps weekly, or at the min, monthly.

And of course, my dear TWR as calculated by Interactive Brokers.


Read more

Bro, i fliming for this best seller sequel; wanna be lead actor mai?

GFH Fund : Getting Freaking Huat Fund!


Reply to @ThumbTackInvestor : Wow i nv pay that much attention to that x ray sia.... u seriously doctor ; or issit that pelvis x ray that interest you more den the chio intern?

Mr kallang Back away from tti slowly

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Thanks for sharing. Just one of the very (very) few people here that share good quality information.


good read.

I know the real name of GFH fund. ;)


Let’s just illustrate the idea of TWR and MWR using an example.

Initial capital: $100
End of year amount: $125
MWR = 25%
TWR = 10% (assumed)

So assuming that TWR is lower at a value of 10%, in the time domain, it means that I only need a 10% gain to reach the same amount of $125 end of year as compared to needing a 25% gain in terms of capital outlay.

In other words or simpler terms, you timed the market very well for TWR to be always lower than MWR. That is already mentioned by our fellow IN peeps in your other thread on TWR.

I may be wrong but that’s the general concept I get. Hope it helps


wah, how to participate in GFH fund?


Reply to @kc2024 : yea that what i wan to know too


XIRR i believe is MWR. Is easy to use in excel.
Long term over many years, the results are realistic compared to actual returns.

The problem is for computing returns within days or months. For example, if i invest 100 and gained 200 in 6 months, it will not be 100% but probably 200% as it takes half the time of the year to double. This performance make sense but likely 200% could not maintain for another 6 months. So it will falls to 100% by end of a year if the 200 remains.

For portfolio that has been tracking like mine for 10 years combined, XIRR don't fluctuate much to be a concern.

But for 1 year annual measure, i tend to close with year end date eg. 31 dec 2018 for open positions right now. This mitigates the large fluctuation and likely will find the result realistic.


Reply to @ThumbTackInvestor : Yes. Just touch down taipei. lol

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