TimingCube - Annualized, average, compound, cumulative and yearly returns - annualized return,average yearly return,compound,cumulative,yearly returns

Follow TimingCube »

	Turbo Model				Classic Model


		Share

Announcing SmartPhone support!

If you are the lucky owner of a SmartPhone, read the FAQ of the Week below to find out how to stay in touch while on the go.

Signal Update

Current Signal Performance as of

Signal Type	Trade Date	Index	Return since issued
		Nasdaq 100
		Russell 2000
		S&P 500
		QQQ

Cumulative Returns since First TimingCube Live Signal () as of

Index	Long Only	Long Only with Margin	Long & Short	Long & Short with Margin	Buy & Hold
Nasdaq 100
Russell 2000
S&P 500
QQQ

Note: QQQ returns are included for continuity sake.

Market Update

A number of technology stock warnings got the week and the earnings season off to a poor start. Reports of slowing job growth and weak sales from retailers provided further evidence of a decelerating economy. Even Yahoo's surging sales and profits failed to satisfy investors. This week, every rallying attempt has been met with buyer apathy, which translated into very weak upside volume.
As a result, the markets ended up generally lower for the week with the Nasdaq 100 losing 2.78% to end in negative territory for the year, the Russell 2000 leading the decline with -3.26%, and the S&P 500 shedding 1.12%.

This week's market action went to reaffirm our current Sell signal.

Trend Timing School

Annualized, average, compound, cumulative and yearly returns

Since our early beginnings we have always strived for total transparency when it comes to reporting results. In doing so, we have continuously raised the bar in the investment newsletter industry, both in the amount of information provided and in the variety of reporting methods offered.
The downside of abundance is that inevitably some of us get confused with all the terminology and, even more, by the respective calculations. The good news is that our results have been checked and re-checked thousands of times and no one has ever found a problem with them. So, unless you really feel an urge to brush-up on your math skills, you can leave the heavy lifting to us. You do not have to be a math major to be a good Trend Timer!

For the curious minded, here are the definitions of terms frequently encountered with investment returns.

Annualized return
This is the one number which, if used as the return each and every year during a multi-year time period, would have resulted in the cumulative return over that period, as if it had grown at a steady rate.

Annualized return formula:
   annualized return = ((1 + cumulative return) ** (1 / years)) - 1
where * * denotes exponentiation or power of

Don't worry; it gets simpler with real numbers.
For example, we invest $10,000 for 2 years.
The first year we have a great return of 80%, the $10,000 grows to $18,000.
The second year is not nearly as good and our investment loses 20% to end up at $14,400. The multiplier is 1.44 which means that the cumulative return is 44%.
To get to the annualized return we need to find the one consistent return number which when used during the 2 years would have grown the $10,000 to $14,400. Using the formula above, we take 1.44 (1 plus the cumulative return) to the power of 1/2 (which happens to be the same as the square root) which is equal to 1.20, minus 1 which gives us an annualized return of 0.20 or 20%.
To verify, $10,000 times 1.20 is $12,000, times 1.20 is $14,400. Bingo!

So why not simply use the average yearly return instead, you may ask.
Because it does not get us to the correct cumulative return.
Using our previous example and the average yearly return formula below, the average yearly return is 0.80 plus -0.20 equals 0.60, divided by 2 equals 0.30 or 30%. But $10,000 times 1.30 is $13,000, times 1.30 is $16,900, which is obviously the wrong answer, and this is why they invented the nifty annualized return. Just one more reason why we feel yearly returns are misleading.

Average yearly return
This is the simple arithmetic average of the yearly returns over several years. We do not favor or use this metric for the same reasons we do not favor the yearly returns.

Average yearly return formula:
   average yearly return = (average yearly return 1 + average yearly return 2) / 2

Compounded return
This is identical to the cumulative return explained below

Compounded Annual Growth Rate (CAGR)
This is identical to the annualized return explained above

Cumulative return
We like this metric as it best represents what an initial investment will grow to over a period of years, because it factors in the compounding effect of reinvested gains. The returns of individual trades during the entire period are compounded using the following formula.

Cumulative return formula:
   cumulative return = ((1 + trade 1 return) * (1 + trade 2 return) * . . . * (1 + trade n return)) - 1

Yearly return
The investment return in a given calendar year. Unlike annualized return, yearly return represents the actual performance for the year. This is very similar to the Annual Percentage Rate (APR) you hear about when you take out a loan. The primary difference is that you pay the APR interest but you receive the yearly return. We do not favor yearly returns because they are misleading and totally ignore the compounding effect so important to long term Trend Timers. Because it is a widely used financial metric we do publish our historical yearly returns. They can be found in the March 12, 2004 FAQ of the Week.

Yearly return formula:
yearly return = (end price / begin price) - 1

Congratulations to the few valiant souls that have made it this far without dozing off!

FAQ of the Week

Question: Can I access the current signal with my SmartPhone?

A SmartPhone is a mobile device combining the capabilities of a wireless phone with PDA-type functionality. They let you communicate via voice or text along with the ability to access online information so you can stay in touch while on the go.
As part of our ongoing efforts to keep our subscribers informed in a timely manner wherever they are, TimingCube introduces secure SmartPhone access to the current signal and trade results.

In order to function with our service, the SmartPhone must be equipped with:

An internet access
A javascript enabled browser accepting secure pages (https protocol)

Examples of compatible devices:

Palm OS 5 (or later) SmartPhones, e.g. PalmOne Treo 600
Windows Mobile 2003 (or later) SmartPhones, e.g. Samsung i600

All you need to do is enter the https://www.timingcube.com/app/html?page=pda_login URL into your SmartPhone's browser and follow the simple login step shown in the picture below.

Other methods traveling subscribers can use to get the signal:

"Signal by Phone", see February 27, 2004 FAQ of the Week
If your cell phone can receive e-mails, set that e-mail address as your alternate e-mail address on the "My Profile" page to receive our notification e-mails wherever you are

Warm wishes and until next week.

The TimingCube Staff