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Opinion – From Grain to Grain: How not to evaluate the performance of your stock portfolio


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Assessing the performance of a set of actions is simple. However, the market’s disappointing return over the past three years has heightened investors’ creativity in interpreting how much they’ve earned. I illustrate two of these wrong ways and usually adopted by investors. Also, I explain what would be the correct way to analyze the return of your stock portfolio.

On November 12, 2019, the Ibovespa was trading at 106,785 points. Today, that is, three years later, the main stock index ended the day at 105,343. This represents a devaluation of 1.35% in three years.

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Whenever I mention the fluctuation of the index, someone asks: What about the dividend gain?

The Ibovespa already considers the reinvestment of dividends, therefore, this negative variation already includes the dividend gain for the period.

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The fact that it already contemplates the receipt and reinvestment of dividends, which means that the price would be even lower if the dividends were not being reinvested.

For example, the average dividend gain on the Ibovespa over these three years was close to 4% per year. In this case, if the dividends were not reinvested, the Ibovespa would be at 93,650 points today.

To calculate the performance of a stock portfolio, one must consider both the dividend gain and the price fluctuations in the period and weigh the share of assets. This is the correct way.

However, as the return was disappointing, investors have abused their creativity to see some upside. I mention two creative and wrong ways to evaluate the performance of a portfolio of stocks so that you are not tempted to use them.

The first way is to disregard price fluctuations and consider only dividend gains. The dividend return of some stocks was much higher than that of the Ibovespa. Even so, the consolidated return was often below the CDI.

For example, even with a return per dividend more than double that of the Ibovespa, the return on the B3 dividend index was only 13.8%, that is, well below that of the CDI in these three years.

Many investors argue that they don’t care about price fluctuations and only look at the dividend gain. Thus, they assess that their return was greater than the CDI.

This is an elegant way to deceive yourself.

It is necessary to understand that it is not appropriate to evaluate only the good part of an asset’s return and disregard the bad part.

The return is a set, that is, price fluctuation and dividend gain. It is not suitable to segregate this set.

Following a similar line, I see many investors evaluate only the winning part of the stock portfolio. These separate the losing part as a long-term investment that should not be considered now.

The argument is that the price will come back, so they don’t consider the losers in the account.

Reinforcement, all assets in the portfolio must be considered in assessing its performance, not just the winners.

Realize that the Ibovespa had a bad performance, but if the assets that fell were not considered, maybe it would be at 200 thousand points.

You know that it makes no sense to make this biased assessment with the Ibovespa. Therefore, it also makes no sense to do the same segregation in your portfolio.

Many criticize the performance of equity fund managers. Those who criticize most of the time do not properly evaluate their portfolios.

Proper portfolio evaluation is important to consider whether you would be taking too many risks or whether you would be better off leaving management to a professional or even investing in a fund referenced to a stock index of your choice.

Michael Viriato is an investment advisor and founding partner of Investor House

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If you have any questions or suggestions for themes, please feel free to send by email.

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