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  • Introducing CMGR - Compound Monthly Growth Rate


    Grolim

    Looking at CAGR return rates are great over a decent length of time, but for the purposes of shorter more accurate timeframes I feel that metric can be a little blunt.

    CAGR takes the current price and shows you the annual percentage growth rate that starting from purchase price that gets you to there. Typically we use the retail release year as the start point, all the Brickpicker set pages do so. This is fine if you purchased it in that same year but if you bought it the year after or even 2 or 3 years after release looking at the CAGR from release date will be far lower than your real investment return. You can solve that by doing the CAGR calculation yourself and using the year you purchased as the starting point.

    But even if you et the starting year right this doesn’t factor in whether the set was purchased in January of the year or in December, and likewise for the end point. A set purchased in Dec-2011 and measured in Jan-2013 has only just over 1 year of time to be measured but CAGR assigns 2 years.

    Many of us track our purchases closely and record purchase dates for our inventory. If you know the month and price you purchased a set then you can use those to create a much more accurate measure of investment performance for your individual circumstance.

    For this analysis I decided to use CMGR – Compound Monthly Growth Rate. The formula and method is exactly the same as CAGR except you take the start and end points and measure in months and it returns the monthly compounding growth rate. The formula is ((End price / Purchase Price) ^ (1 / months)) – 1.

    e.g. you bought a set in December for $100 and it has a market price in June of $150, so ((150/100)^(1/6)-1 = 6.99% CMGR.

    You can check your result by taking the start point of $100 and multiply it by 1+CMGR 6 times. So $100 x 1.0699 x 1.0699 x 1.0699 x 1.0699 x 1.0699 x 1.0699 = $150

    CMGR is especially useful for investors/resellers who hold stock for a short period of time.

    It also lets you evaluate the book value of the sets you currently hold right up to the latest month. Just take your starting point and measure it against the current market price. You can even account for fees and transaction costs by removing them off the current market price first. That way you have an up to the month accurate representation of the performance of your investment portfolio.

    I can be difficult to transition to CMGR as most people’s minds work in annual percentage terms, and so many of the comparable stats and information we use is based on annual figures. Fear not, you can easily convert your CMGR to a CAGR with this formula:

    CAGR = (CMGR + 1) ^ 12 -1 then divide by 100 to get a percentage

    So in our example our $100 set to $150 in 6 months would actually read as having a CAGR of 50% if you used the normal CAGR calculation because it would assign 1 year of growth even though December to June is only 6 months. To find a more accurate CAGR we can use the CMGR of 6.99% that we found to calculate the following;

    CAGR = (6.99% + 1) ^ 12 – 1
    = 1.0699 ^12 – 1
    = 2.25 – 1
    = 125%

    I hope some of you find a use for CMGR and use it to provide a more accurate picture of performance on both sets you’ve sold and those you are currently keeping in your portfolio.




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