Many years ago, I learned the one thing you can expect in life is the unexpected. The ebb and flow of life is such that having expectations inevitably leads to either disappointment or surprise. Other than the constants of nature, one can never really know what will happen tomorrow. For example, after the ADP report yesterday, pundits, analysts, and more than few sought-out economists raised their projections about the jobs report that came out today. Well, those folks must be feeling professionally embarrassed today, or, if not that, then disappointed for sure. The collective whoosh of expelled breath this morning was enough to blow out candles from here to China. The totality of “incorrectness” in this matter does make one wonder how, in fact, these folks develop their estimates. It sure seems a wet finger in the wind would be more accurate.
I must admit, yesterday I forgot what I said I learned in the above paragraph, ya know, expecting the unexpected. It’s funny, no matter how many years I tuck under my belt, or how much wisdom I acquire, I never seem to let go of my child-like excitement about the future, and sometimes that sensibility overrides my wisdom. Last night, I went to sleep feeling much like a small child might the night before a major event, such as a gift-giving holiday or a birthday. I fell asleep thinking this would be a good day …
Like a child, I see the world simply, and this is by choice. I have often written that we humans tend to take the simple and turn it into the complex. As an example, take a look at the U.S. tax code. As another example, take a look at the question below.
My question is more along the lines of mathematics or accounting. I’m trying to figure out my proper ROR’s [rate of return] for the month, YTD, and on an annualized basis. When I do the calculation for my monthly ROR, do I calculate it based on my original starting capital amount, or is it based on the prior month’s accumulation? Same for my YTD ROR? Is it based on my original starting capital, or the accumulation of the prior month’s equity? As for the annualized ROR, for April thru June, am I doing it correctly if I average out 3 months return, then multiply that by 9? Any help would be greatly appreciated.
The fact is, my friend, I don’t really have much help for you, other than to say, keep it simple. I don’t know what your reasons are for desiring such complexity in your calculations about measuring your rate of return. True, metrics can be helpful in determining the effectiveness of strategies, but if overdone, they can be counterproductive. You can spend too much time mathematically assessing and not enough time analyzing the bigger picture. Ya know, not seeing the forest for the trees kinda thing. The bottom line is that no matter how you define your metrics, the only thing that matters in the end is whether you are making money or not. So, the question to you is: Are you making money?
As I said, keeping life as simple as possible is a good thing, at least for me. As well, expecting the unexpected is a piece of wisdom that can help with this. At least that way, one can keep on more even keel about the market, a fickle creature not bent on numbers and calculations …
Trade in the day – Invest in your life …
