Alpha and Beta: What is the best way to use them and why are they important?

Alpha denotes the returns that exceed the initial investment return or benchmark. While Beta measures the correlation between a stock and the overall market. Beta helps in predicting the returns of an asset using the Capital Asset Pricing Model, while Alpha is the measurement of the absolute return exceeding that prediction.

Investment and financial markets frequently use the terms “Chasing Alpha” and “Market Beta”. Although they may seem like complicated financial concepts, all investors should understand how Alpha and Beta function in the investment world. Alpha and Beta are often used as measures to evaluate the performance and risk of an investment portfolio or an individual… Continue reading →

What is the best way to measure inflation-adjusted return and why is it important?

The Inflation Adjusted Return, also known as the Real Rate of Return, is the Return on Investment after accounting for inflation. Inflation refers to purchasing power of money decreasing due to a general increase in the prices of goods and services.

The Inflation-Adjusted return explained. The Inflation Adjusted Return, also known as the Real Rate of Return, is the Return on Investment after accounting for inflation. Inflation refers to purchasing power of money decreasing due to a general increase in the prices of goods and services. The inflation-adjusted return is a precise measure of the true… Continue reading →

What is the best way to calculate Portfolio Turnover?

The Portfolio Turnover Ratio is a vital metric in portfolio management that indicates the frequency at which securities are bought and sold over a given period. The turnover rate of assets in a portfolio can provide insights into the investor, fund, or strategy type.

The Portfolio Turnover ratio explained. The Portfolio Turnover Ratio is a vital metric in portfolio management that indicates the frequency at which securities are bought and sold over a given period. The turnover rate of assets in a portfolio can provide insights into the investor, fund, or strategy type. Although private investors may not be… Continue reading →

What is the Enterprise Value and how to use it?

The Enterprise Value is a metric used to determine the total value of a company if it were to be purchased entirely. It is different from market capitalisation, which considers only the common equity of all shares. The EV provides a more accurate representation of a company’s actual value in terms of its total purchase price.

The Enterprise Value explained. The Enterprise Value is a metric used to determine the total value of a company if it were to be purchased entirely. It is different from market capitalisation, which considers only the common equity of all shares. The EV provides a more accurate representation of a company’s actual value in terms… Continue reading →

What is the Rule 72 and how to use it?

The rule of 72 is a simple way to determine how long an investment (your capital) will take to double given an annual rate of return. It is a great way to see the effects on your capital with a yield that is known whether it be from dividends, fixed bank rates or bonds. I also use it as an “estimation” only on potential investment ideas if I am modelling ROIC (just for curiosities sake). It is best used for anything that grows at a compounded rate.

The Rule of 72 explained. The rule 72 is a simple way to determine how long an investment (your capital) will take to double given an annual rate of return. It is a great way to see the effects on your capital with a yield that is known whether it be from dividends, fixed bank… Continue reading →

A simple way to Calculate Portfolio Returns.

There is a multitude of portfolio, investment, and financial management software available. In my personal experience, I still after 15 years prefer to use excel for practically everything to do with investments. I have tried a lot of different subscription and software services, but I have tailored my own systems to reflect my own process and how I manage my wealth.

Calculate Portfolio Returns explained. This is a simple formula to calculate portfolio returns. I prefer to use it annually however you can use the formula monthly measuring performance depending how active you are. There is a multitude of portfolio, investment, and financial management software available. In my personal experience, I still after 15 years… Continue reading →

What is the Compound Annual Growth Rate?

The CAGR (Compound Annual Growth Rate) measures the average annual growth of an investment over a given period. CAGR is a helpful tool for investors because it measures investment growth (or decline) over time. This can be a useful way to measure against a benchmark if you have one.

The Compound Annual Growth Rate explained. The Compound Annual Growth Rate (CAGR) measures the average annual growth of an investment over a given period. CAGR is a helpful tool for investors because it measures investment growth (or decline) over time. This can be a useful way to measure against a benchmark if you have one…. Continue reading →