Diageo vs Fevertree

[YeeWo]

Yes! I did buy that copy of IC this weekend mainly for the Diageo article. And I bought about 1500 quids worth of DGE shares this morning. They haven't dropped to the same low levels that a lot of my fave prospective shares have, and I ummed and ahhed about whether to set a buy limit at a low price, but figured I'd best not procrastinate I bought them at about 2840/share. Fingers crossed....

£1500 worth isn't likely to have a meaningful short-term impact, but if you hold for a Very Long Time and Reinvest the Dividends it should comfortably outperform cash-on-deposit! I attach for your perusal my DGE history, NB how all dividends are logged-in and an XIRR figure is worked out. Perhaps this is useful for you: -

Code: Select all

Date      | Type       | No.  | SP      | Price       | Fee     | XIRR flow   |         |         
12-Jan-11 | BUY        |  175 | £12.165 |   £2,128.88 |  £23.66 |   £2,152.54 |         |         
06-Apr-11 | CASH DIVI  |      |         |     -£27.12 |         |     -£27.12 |         |         
19-Apr-11 | BUY        |  175 | £12.022 |   £2,103.88 |  £23.53 |   £2,127.41 |         |         
24-Oct-11 | CASH DIVI  |      |         |     -£87.15 |         |     -£87.15 |         |         
12-Apr-12 | CASH DIVI  |      |         |     -£58.10 |         |     -£58.10 |         |         
23-Apr-12 | BUY        |  350 | £15.720 |   £5,502.23 |  £40.53 |   £5,542.76 |         |         
24-Apr-12 | SELL       | -350 | £15.580 |  -£5,453.22 |  £12.95 |  -£5,440.27 |         |         
11-Sep-12 | BUY        |  350 | £17.003 |   £5,951.05 |  £42.77 |   £5,993.82 |         |         
22-Oct-12 | CASH DIVI  |      |         |     -£94.15 |         |     -£94.15 |         |         
08-Apr-13 | CASH DIVI  |      |         |    -£126.70 |         |    -£126.70 |         |         
03-Oct-13 | CASH DIVI  |      |         |    -£205.10 |         |    -£205.10 |         |         
07-Apr-14 | CASH DIVI  |      |         |    -£137.90 |         |    -£137.90 |         |         
10-Jul-14 | BUY        |  590 | £18.615 |  £10,982.85 |  £68.93 |  £11,051.78 |         |         
02-Oct-14 | CASH DIVI  |      |         |    -£412.80 |         |    -£412.80 |         |         
07-Apr-15 | CASH DIVI  |      |         |    -£277.35 |         |    -£277.35 |         |         
16-Sep-15 | SELL       | -540 | £17.810 |  -£9,621.10 |  £12.95 |  -£9,608.15 |         |         
08-Oct-15 | CASH DIVI  |      |         |    -£450.21 |         |    -£450.21 |         |         
07-Apr-16 | CASH DIVI  |      |         |    -£169.50 |         |    -£169.50 |         |         
06-Oct-16 | CASH DIVI  |      |         |    -£274.50 |         |    -£274.50 |         |         
06-Apr-17 | CASH DIVI  |      |         |    -£177.75 |         |    -£177.75 |         |         
05-Oct-17 | CASH DIVI  |      |         |    -£288.75 |         |    -£288.75 |         |         
03-Jan-18 | SELL       | -250 | £26.710 |  -£6,677.50 |  £10.50 |  -£6,667.00 |         |         
05-Apr-18 | BUY        |  250 | £24.685 |   £6,171.25 |  £41.41 |   £6,212.66 |         |         
06-Apr-18 | CASH DIVI  |      |         |    -£124.50 |         |    -£124.50 |         |         
29-May-18 | SELL       | -250 | £27.616 |  -£6,904.06 |   £7.95 |  -£6,896.11 |         |         
19-Sep-18 | BUY        |  250 | £26.080 |   £6,520.00 |  £40.55 |   £6,560.55 |         |         
04-Oct-18 | CASH DIVI  |      |         |    -£202.00 |         |    -£202.00 |         |         
07-Dec-18 | CURR. VAL. |      |         |             |         | -£21,176.25 |         |         
          |            |      |         |             |         |      12.00% | XIRR    |         
          |            |      |         |             |         |             |         |         
          |            |      |         |             |         |             |         |         
          |            |      |         |     7590.68 | £325.73 |  £ 7,916.41 | £ 10.56 | Avg Price
          |            |      |         | Share Price | £ 28.24 | £ 21,176.25 |         |         
          |            |      |         |             |         |     167.50% |         |         
          |            |      |         | MoS/Loss    |         | £ 13,259.85 |         |         


[TheMotorcycleBoy]

Yes! I did buy that copy of IC this weekend mainly for the Diageo article. And I bought about 1500 quids worth of DGE shares this morning. They haven't dropped to the same low levels that a lot of my fave prospective shares have, and I ummed and ahhed about whether to set a buy limit at a low price, but figured I'd best not procrastinate I bought them at about 2840/share. Fingers crossed....

£1500 worth isn't likely to have a meaningful short-term impact, but if you hold for a Very Long Time and Reinvest the Dividends it should comfortably outperform cash-on-deposit! I attach for your perusal my DGE history, NB how all dividends are logged-in and an XIRR figure is worked out. Perhaps this is useful for you: -

Many thanks YeeWo!

Yes DGE is definitely a LTBH for us. Just kind of wish we'd discovered quality firms such as this one, earlier. But then again, Mel and I only started private investing back in March 2018, so it's been a very steep learning curve for us since then.

re. the £1500 worth, that's basically just the kind of funds we are currently getting to put down each time into the ISAs. Our platform is iWeb, and they charge £5 per trade.

FWIW, we have now got around 20 equities in our p/f (which we are trying to concentrate on, with less ongoing diversification, we think*) and are setting ourselves the following buy rules/amounts:

new holdings: £1000-1500
AIM top-ups: £750
FTSE350 top-ups: £1000

Lastly, thanks for the history, and when you get the time, can you explain what XIRR means?

thanks again,
Matt

(*) That is, concentrate on learning more about the holdings we currently, which by and large we like.

[ADrunkenMarcus]

Slow and steady wins the day for DGE.

Since October 1998, the share price rose from 553p to almost 2900p in the summer of 2018. And the dividends paid to someone buying back then now significantly exceed the book cost on a nominal basis. On a total return basis, the CAGR is about 10-11%.

Best wishes

Mark.

[Alaric]

can you explain what XIRR means?

XIRR is a spreadsheet function found in Excel and similar software, which calculates the internal rate of return for a series of cash flows.

The use of it for reviewing share performance is that you record money in, money out, value now, the dates on which it happened and it tells you the rate of return.

[Gengulphus]

can you explain what XIRR means?

XIRR is a spreadsheet function found in Excel and similar software, which calculates the internal rate of return for a series of cash flows.

Just to add a bit more to that, the "IRR" part of the function name is simply a fairly obvious abbreviation for "Internal Rate of Return", and I think the "X" part stands for "extended": there is a less capable IRR() spreadsheet function, which takes a sequence of undated cash flows and tell you what their internal rate of return is per interval, on the assumption that the cashflows are spaced at regular intervals. The XIRR() function takes dated cashflows and tell what their internal rate of return is per year.

Gengulphus

[TheMotorcycleBoy]

can you explain what XIRR means?

XIRR is a spreadsheet function found in Excel and similar software, which calculates the internal rate of return for a series of cash flows.

Just to add a bit more to that, the "IRR" part of the function name is simply a fairly obvious abbreviation for "Internal Rate of Return", and I think the "X" part stands for "extended": there is a less capable IRR() spreadsheet function, which takes a sequence of undated cash flows and tell you what their internal rate of return is per interval, on the assumption that the cashflows are spaced at regular intervals. The XIRR() function takes dated cashflows and tell what their internal rate of return is per year.

Gengulphus

Thanks, Geng,

Probably one for me to google and research sometime.

cheers Matt

[Gengulphus]

Probably one for me to google and research sometime.

A very quick description of the internal rate of return of a sequence of cash flows is that it's the fixed interest rate that a bank account that started at zero and received those cash flows (or paid them out if negative) would have to pay (or charge on negative balances) to end up at zero.

So for example, the internal rate of return of the sequence of yearly cash flows +£100, +£100, -£231 is 10% per year, because if a 10%-paying bank account that had just been opened received a deposit of £100, then another deposit of £100 a year later, it would be worth £100 deposited + £10 interest + £100 deposited = £210 at that point. Letting another year pass would add £21 interest to that, bringing the balance to £231, and withdrawing £231 would then take the balance back down to zero.

For a much longer discussion of it, the Wikipedia article about it looks reasonable. But the basic concept of it being the fixed interest rate required to match the performance is pretty simple.

Gengulphus

[TheMotorcycleBoy]

Probably one for me to google and research sometime.

A very quick description of the internal rate of return of a sequence of cash flows is that it's the fixed interest rate that a bank account that started at zero and received those cash flows (or paid them out if negative) would have to pay (or charge on negative balances) to end up at zero.

So for example, the internal rate of return of the sequence of yearly cash flows +£100, +£100, -£231 is 10% per year, because if a 10%-paying bank account that had just been opened received a deposit of £100, then another deposit of £100 a year later, it would be worth £100 deposited + £10 interest + £100 deposited = £210 at that point. Letting another year pass would add £21 interest to that, bringing the balance to £231, and withdrawing £231 would then take the balance back down to zero.

For a much longer discussion of it, the Wikipedia article about it looks reasonable. But the basic concept of it being the fixed interest rate required to match the performance is pretty simple.

Gengulphus

Thanks again mate.....I'll chew on this later on this evening.

[TheMotorcycleBoy]

Yes! I did buy that copy of IC this weekend mainly for the Diageo article. And I bought about 1500 quids worth of DGE shares this morning. They haven't dropped to the same low levels that a lot of my fave prospective shares have, and I ummed and ahhed about whether to set a buy limit at a low price, but figured I'd best not procrastinate I bought them at about 2840/share. Fingers crossed....

£1500 worth isn't likely to have a meaningful short-term impact, but if you hold for a Very Long Time and Reinvest the Dividends it should comfortably outperform cash-on-deposit! I attach for your perusal my DGE history, NB how all dividends are logged-in and an XIRR figure is worked out. Perhaps this is useful for you: -

Code: Select all

Date      | Type       | No.  | SP      | Price       | Fee     | XIRR flow   |         |         
12-Jan-11 | BUY        |  175 | £12.165 |   £2,128.88 |  £23.66 |   £2,152.54 |         |         
06-Apr-11 | CASH DIVI  |      |         |     -£27.12 |         |     -£27.12 |         |         
19-Apr-11 | BUY        |  175 | £12.022 |   £2,103.88 |  £23.53 |   £2,127.41 |         |         
24-Oct-11 | CASH DIVI  |      |         |     -£87.15 |         |     -£87.15 |         |         
12-Apr-12 | CASH DIVI  |      |         |     -£58.10 |         |     -£58.10 |         |         
23-Apr-12 | BUY        |  350 | £15.720 |   £5,502.23 |  £40.53 |   £5,542.76 |         |         
24-Apr-12 | SELL       | -350 | £15.580 |  -£5,453.22 |  £12.95 |  -£5,440.27 |         |         
11-Sep-12 | BUY        |  350 | £17.003 |   £5,951.05 |  £42.77 |   £5,993.82 |         |         
22-Oct-12 | CASH DIVI  |      |         |     -£94.15 |         |     -£94.15 |         |         
08-Apr-13 | CASH DIVI  |      |         |    -£126.70 |         |    -£126.70 |         |         
03-Oct-13 | CASH DIVI  |      |         |    -£205.10 |         |    -£205.10 |         |         
07-Apr-14 | CASH DIVI  |      |         |    -£137.90 |         |    -£137.90 |         |         
10-Jul-14 | BUY        |  590 | £18.615 |  £10,982.85 |  £68.93 |  £11,051.78 |         |         
02-Oct-14 | CASH DIVI  |      |         |    -£412.80 |         |    -£412.80 |         |         
07-Apr-15 | CASH DIVI  |      |         |    -£277.35 |         |    -£277.35 |         |         
16-Sep-15 | SELL       | -540 | £17.810 |  -£9,621.10 |  £12.95 |  -£9,608.15 |         |         
08-Oct-15 | CASH DIVI  |      |         |    -£450.21 |         |    -£450.21 |         |         
07-Apr-16 | CASH DIVI  |      |         |    -£169.50 |         |    -£169.50 |         |         
06-Oct-16 | CASH DIVI  |      |         |    -£274.50 |         |    -£274.50 |         |         
06-Apr-17 | CASH DIVI  |      |         |    -£177.75 |         |    -£177.75 |         |         
05-Oct-17 | CASH DIVI  |      |         |    -£288.75 |         |    -£288.75 |         |         
03-Jan-18 | SELL       | -250 | £26.710 |  -£6,677.50 |  £10.50 |  -£6,667.00 |         |         
05-Apr-18 | BUY        |  250 | £24.685 |   £6,171.25 |  £41.41 |   £6,212.66 |         |         
06-Apr-18 | CASH DIVI  |      |         |    -£124.50 |         |    -£124.50 |         |         
29-May-18 | SELL       | -250 | £27.616 |  -£6,904.06 |   £7.95 |  -£6,896.11 |         |         
19-Sep-18 | BUY        |  250 | £26.080 |   £6,520.00 |  £40.55 |   £6,560.55 |         |         
04-Oct-18 | CASH DIVI  |      |         |    -£202.00 |         |    -£202.00 |         |         
07-Dec-18 | CURR. VAL. |      |         |             |         | -£21,176.25 |         |         
          |            |      |         |             |         |      12.00% | XIRR    |         
          |            |      |         |             |         |             |         |         
          |            |      |         |             |         |             |         |         
          |            |      |         |     7590.68 | £325.73 |  £ 7,916.41 | £ 10.56 | Avg Price
          |            |      |         | Share Price | £ 28.24 | £ 21,176.25 |         |         
          |            |      |         |             |         |     167.50% |         |         
          |            |      |         | MoS/Loss    |         | £ 13,259.85 |         |         


Hi YeeWo,

Out of interest, would you personally buy today? i.e. at roughly 2850p ?

Matt

[77ss]

Probably one for me to google and research sometime.

A very quick description of the internal rate of return of a sequence of cash flows is that it's the fixed interest rate that a bank account that started at zero and received those cash flows (or paid them out if negative) would have to pay (or charge on negative balances) to end up at zero.

So for example, the internal rate of return of the sequence of yearly cash flows +£100, +£100, -£231 is 10% per year, because if a 10%-paying bank account that had just been opened received a deposit of £100, then another deposit of £100 a year later, it would be worth £100 deposited + £10 interest + £100 deposited = £210 at that point. Letting another year pass would add £21 interest to that, bringing the balance to £231, and withdrawing £231 would then take the balance back down to zero.

For a much longer discussion of it, the Wikipedia article about it looks reasonable. But the basic concept of it being the fixed interest rate required to match the performance is pretty simple.

Gengulphus

Thanks again mate.....I'll chew on this later on this evening.

Theory is one thing. Perhaps a concrete example would help?

Buy a zero yielding asset which gives, after a time period, an XIRR of 12% (using the figure YeeWo quotes for his DGE holding).

After 6 years, you will have doubled your capital. A pretty satisfactory performance in my view.

If my memory serves me correctly, many years ago Gengulphus once suggested that an XIRR of 8% was a decent outcome for an HYP share - I hope to be corrected if I have misremembered/misquoted in any way.

[TheMotorcycleBoy]

Thanks for this 77ss

Theory is one thing. Perhaps a concrete example would help?

Buy a zero yielding asset which gives

Would that, be as in a dividend yield of zero?

, after a time period, an XIRR of 12% (using the figure YeeWo quotes for his DGE holding).

I am further assuming that you mean time period of a year, since subsequently you refer to a 6 year period.

By the way I googled "xirr vs irr" and found this, which helped a little.

But anyway I'm assuming that when you folks say XIRR is taking account of all cash flows, including potentially unrealised ones, i.e. because the asset price changed. e.g. if I buy an asset at £1000 which pays £50 dividend in a year, but loses £10 in value, then my XIRR for that year is

100  *  ((1000 - 10 + 50) - 1000)/1000  = 4%

Correct?

And from the wiki Geng linked earlier

Equivalently, it is the discount rate at which the net present value of future cash flows is equal to the initial investment, and it is also the discount rate at which the total present value of costs (negative cash flows) equals the total present value of the benefits (positive cash flows).

So were I to use discount rate of 4% in my above depiction to form NPV of the future value of asset (including all it's cash flows), then that would give the same value as my initial investment.

Cool?

(I'm a bit busy at work, but will maybe play about with Excel/Calc this weekend, though the maths theory seems pretty trivial)

[YeeWo]

Hi YeeWo, Out of interest, would you personally buy today? i.e. at roughly 2850p? Matt

Well I'm no barometer of wisdom, I'm Down circa 7% YTD!
I hold 21 different stocks AZN, BP, BATS, BLND, CCH, DGE, GFS, GSK, HSBA, IMB, INCH, IHG, RB, REL, RIO, RR, RDSB, SN, TATE, ULVR & VOD.
This year I've been adding on weakness BATS and VOD. I've also added RIO and TATE ab initio.
I would consider your Portfolio a bit like a Gentleman's wardrobe : Diageo is the classic shoes that should last a lifetime, so YES I'd hold what you've got spend a few years logging the dividends and calculating the effect properly and keep read on the booze business.

I'll be writing up this, bloody awful, year warts-and-all at the end of the month in the 'Portfolio Management & Review' section!

[Alaric]

though the maths theory seems pretty trivial)

It's zeroes of polynomials.

Find the value of x such that

A(0) + A(1) * x + A(2) * x^2 + A(3) * x^3 + ...... A(n) * x^n = 0

x is 1/ ( 1+ rate of return)

XIRR works in days and then converts to an annualised rate.

Be aware that if the values of A(i) change sign, there can be more than one solution for x.

[TheMotorcycleBoy]

Hi YeeWo, Out of interest, would you personally buy today? i.e. at roughly 2850p? Matt

Well I'm no barometer of wisdom, I'm Down circa 7% YTD!
I hold 21 different stocks AZN, BP, BATS, BLND, CCH, DGE, GFS, GSK, HSBA, IMB, INCH, IHG, RB, REL, RIO, RR, RDSB, SN, TATE, ULVR & VOD.
This year I've been adding on weakness BATS and VOD. I've also added RIO and TATE ab initio.
I would consider your Portfolio a bit like a Gentleman's wardrobe : Diageo is the classic shoes that should last a lifetime, so YES I'd hold what you've got spend a few years logging the dividends and calculating the effect properly and keep read on the booze business.

I'll be writing up this, bloody awful, year warts-and-all at the end of the month in the 'Portfolio Management & Review' section!

Thanks YeeWo,

Don't worry, I'm sure a lot of us are down too! Me and Mel only started investing this March 2018. I think we are down about 4.5%. We would be down about 7.5%, were it not for the fact we did some naughty short-term sales (i.e. took advantage of very quick rises in a couple of our stocks, e.g. in TUNE, CCC and BUR, and picked TUNE and BUR back up when low)

Matt

[TheMotorcycleBoy]

though the maths theory seems pretty trivial)

It's zeroes of polynomials.

Find the value of x such that

A(0) + A(1) * x + A(2) * x^2 + A(3) * x^3 + ...... A(n) * x^n = 0

x is 1/ ( 1+ rate of return)

XIRR works in days and then converts to an annualised rate.

Be aware that if the values of A(i) change sign, there can be more than one solution for x.

Cool.

So did I get the overall concept right back in

viewtopic.php?p=184677#p184677

?

[Gengulphus]

If my memory serves me correctly, many years ago Gengulphus once suggested that an XIRR of 8% was a decent outcome for an HYP share - I hope to be corrected if I have misremembered/misquoted in any way.

I've certainly said things along those lines, yes. The only caveats that I'd place on it are essentially:

* It's saying that an 8% internal rate of return is not something to be disappointed about, not anything more - "decent" means just that, not "excellent" or "outstanding".

* It's about long-term internal rates of return - short-term ones are too affected (in both directions) by general market movements.

* If all your shares are bought at about the same time, it will have to be a very long-term internal rate of return to not be heavily influenced by whether that time was near a market peak or trough. An 8% internal rate of return from a HYP share bought around the market peak in 2007 is far more impressive than one bought around the market trough in early 2009, despite the roughly ten years that have passed since then being reasonably long-term. It was really about portfolios of shares bought at a variety of different times (which even non-tinkering lump-sum HYPs like HYP1 become eventually - only 8 of its current 15 shares were bought in its initial purchases in 2000).

Gengulphus

[Gengulphus]

But anyway I'm assuming that when you folks say XIRR is taking account of all cash flows, including potentially unrealised ones, i.e. because the asset price changed. ...

Essentially, if you want to measure a portfolio's internal rate of return over a period that starts at a time that it's already in existence, you've got to 'fake' it coming into existence at that point. That involves producing a notional cashflow into the portfolio at that time, of the value it had at that time, and leaving out all cashflows into or out of the portfolio before that time. I.e. basically you're ignoring the previous history of the portfolio by pretending it never happened and that instead you deposited cash equal to the value of the portfolio at that time into it at that time, followed by making cost-free purchases at that time (which aren't cashflows into or out of the portfolio and so don't need to appear in the data at all).

Similarly, if you want to measure a portfolio's internal rate of return over a period that ends at a time that it's still in existence, you've got to 'fake' it ceasing to exist at that point. That involves producing a notional cashflow out of the portfolio at that time, of the value it had at that time, and leaving out all cashflows into or out of the portfolio after that time. I.e. basically you're ignoring the subsequent history of the portfolio by pretending it never happened and that instead you made cost-free sales of all the portfolio's assets at that time (which again aren't cashflows into or out of the portfolio and so don't need to appear in the data at all), followed by withdrawing cash equal to the value of the portfolio at that time into it at that time.

In the common case that you want to calculate the internal rate of return of a portfolio from its start to the present, then if the portfolio still exists, the second of those means that you need to 'fake' the portfolio being liquidated at its present value. I.e. you're basically right - but it hopefully this will help you decide just when 'fake' cashflows are needed and not needed.

... e.g. if I buy an asset at £1000 which pays £50 dividend in a year, but loses £10 in value, then my XIRR for that year is

100  *  ((1000 - 10 + 50) - 1000)/1000  = 4%

Correct?

Basically correct, but it depends on just when during the year the dividend is paid. If right at its end, then yes, you've changed £1000 into £1040 over the course of the year and the rate of return is 4.00%, which is what XIRR() will calculate if fed with the right amounts and dates for that. If right at its start, though, the dividend is basically just a £50 discount on the initial £1000, and so you're effectively change £950 into £990, a rate of return of about 4.21%, and if XIRR() is instead fed with the amounts and dates of those cashflows, that is what it will calculate.

If somewhere in the middle of the year, XIRR() will calculate an answer between 4.00% and 4.21%.

Gengulphus

[77ss]

Thanks for this 77ss

I can't handle nested quotes (much trickier than XIRRs!) - so I hope the following answers will make sense:

Buy a zero yielding asset which gives

Would that, be as in a dividend yield of zero?

Yes.


after a time period, an XIRR of 12% (using the figure YeeWo quotes for his DGE holding).

I am further assuming that you mean time period of a year, since subsequently you refer to a 6 year period.

Yes (if I understand your question). XIRR/IRR give annual returns over any specified period - but it certainly doesn't have to be an integral number of years. As Gengulphus has pointed out, XIRR is really pretty meaningless over short time spans - I don't start to pay any attention to my XIRR data before at least 2 years.

But anyway I'm assuming that when you folks say XIRR is taking account of all cash flows, including potentially unrealised ones, i.e. because the asset price changed. e.g. if I buy an asset at £1000 which pays £50 dividend in a year, but loses £10 in value, then my XIRR for that year is

100  *  ((1000 - 10 + 50) - 1000)/1000  = 4%

Correct?

No. You are right that all cash flows are taken into account - but so are the dates. In your example it depends on when in the year the dividend is paid. A payment date on the last day of the year woud give an XIRR of 4.01%, whereas a payment date of the day after purchase would give an XIRR of 4.22%. You have to do a bit of playing around with your spreadsheet software.

[YeeWo]

In summary on the subject of XIRR if you look at my spreadsheet for DGE the logging of investments/dividends and the subsequent adjustments of some figures into (minus) figures seems to give a meaningful metric of how the initial and subsequent investment has performed. If something isn't Mathematically Robust in the method I'm using to measure my investments I'd be really gratefully to know about it! Thanks, GLA.

[TheMotorcycleBoy]

Thanks for the info, everyone! Another "busy day at the office" so will fully process later on....

Matt