Explanation of TWR %

Dear fellow investors,

Would appreciate any advice on how to interpret TWR%. I understand that TWR% is a metric that an investor can use to see whether his portfolio is out-performing the market. I also understand that TWR removes the distorting effects of cash injections / outflows into a portfolio. It is also supposed to be a measure of how your portfolio has compounded over time.

I have been investing for about 1 year and 1 month - I started in Jan 2020. My present TWR% is about 83%. Stockscafe also shows that my TWR for 2020 is 54.4% in 2020, and 18.3% for 2021.

My questions are:

(a) If my present TWR is 83%, what does that mean? This number is slightly different from my overall returns which is 81.6%.

(b) My TWR for 2020 is 54.4%, and 18.3% for 2021. Does that mean that my portfolio grew 54.4% in 2020, and 18.3% in 2021?

Many thanks in advance!

(1+54.4%)*(1+18.3%) = (1+82.6%), hence TWR=82.6%

Thank you for sharing how the calculation is done.

However, I wanted to check what do the numbers mean? If my current TWR% is about 83%, does that mean that over the course of the last 1 year and 1 month, my portfolio grew by around 83%?

Also, does the number indicate any kind of time horizon? E.g. a person who has achieved a TWR% of 83% over 1 year, versus someone who achieves the same TWR% in 5 years, has obviously performed better.

Thanks!

In case, you have not seen this -> https://www.investopedia.com/terms/t/time-weightedror.asp

It means that your portfolio of stocks grew by 83% over the 1 year and 1 month but it does not consider the effect of money inflow and outflow.

Basically, it means that it assumes that you had $1 in your stocks at the beginning and it will become $1.83 at the end. However, if you did inject more money or remove money from it, it ignores all those.

Ideally, you should compare TWR between different portfolio on the same time period.

Cheers,
Evan

Dear Evan,

Many thanks for your explanation which was extremely clear. Happy CNY to you and your family.

Hi,

Wrote up this tutorial -> https://stockscafe.academy/447/returns-definitions/

Hope it helps.

Cheers,
Evan

Hi Evan,

Just a follow up on TWR%. If I assume that my TWR is 30%, wouldn’t that mean that if I take total portfolio/ capital - 1, I should get TWR%? But that does not seem to be the case. What am I missing here?

Thanks,
Diana

Hi Diana,

Would this be helpfulf or you? => Returns Definitions (TWR and XIRR) - StocksCafe Academy

Cheers,
Evan

Hi Evan,

Yes, i did go through the page but still couldn’t reconcile my figures. In the portfolio overview page, we have the overall TWR, capital and total portfolio. So if I take total portfolio/ capital - 1, I should get TWR, right? But that is not the case so what am I missing here?

Thanks,
Diana

Hi Diana,

This is not the case. Total Portfolio / Capital - 1 => Would only give you the P&L %.

TWR basically sums up your portfolio changes over time but ignores the changes in costs/capital.

Cheers,
Evan

Okay got it thanks!

Best,
Diana

1 Like

Hi Evan,

Why is my TWR showing such a long number,

TWR = 3674730195144163500000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000.00%,

Regards,
Arun

Hi Arun,

Sorry for the issue. Yes, it is a known issue. The simple fix is simply update your portfolio report → TWR incorrect currently - #10 by evankoh

I am working to find what caused it.

Thanks,
Evan