Joe,

Glad you were able to help Don. My comments a

As is usual, a more reasonable guess solved the problem. Why can't users
figure out there's a reason XIRR has a guess parameter? Because they're
users -- they just want it to work. Why didn't MS do a better job of
programming XIRR? Because they're programmers. It meets the spec, so why put
in extra work.

My bet is that over 90% of the errors in using XIRR can be fixed by using a
guess of 10% when the total cash flow is positive, and -10% when it's
negative. In fact, I always use a guess of 10%*sign(sum(cashflows)). It
would have been so simple for MS to do the same, but unfortunately, they
didn't.

Newton-Raphson can't be blamed for poor programming on the part of MS. Any
calculation of the ROI for irregular investments must use iteration to find
the result. There are several iteration algorithms available; NR just
happens to be the fastest, which is why everyone uses it.

As it's been explained to me, it's like finding the edge of the lake from a
starting point on the shore. You calculate the tangent of the curve you are
on as the next starting point. You continue until you find the lake.
Unfortunately, if you start in a hollow, you go off in the wrong direction,
and never converge towards the lake. In this situation, you need to pick a
different guess. It doesn't have to be a *better* guess, just different
(using my analogy, somewhere out of the hollow).

As we both agree, MS itself could have programmed XIRR to pick a different
guess, and try again. They could easily have calculated a guess based on the
ratio of the total positive cash flows to the total negative. But they
didn't.

The silver lining to their laziness is that you and I get to pontificate on
the machinations of XIRR.

Regards,
Fred

"JoeU2004" wrote in message
...
Don acknowledged in email that the -400% that he observed was due to human
error.

Nonetheless, for the cash flow stream that he sent me (below), XIRR()
returns about 0.0000002980%. That is obviously incorrect, since XNPV()
returns about -43,338.86, which is not even close to zero.

The root cause is the need for a "guess" argument (Don did not have one),
and a correct "guess" argument at that.

Reducing the irregular daily cash flows to monthly net cash flows (see
below), we see a series of negative cash flows (investments) and one
positive cash flow (return). Since the sum of the investments
(about -136K) is much larger than the return (about 96K), we expect a
negative IRR. So I tried a "guess" of -1%, and XIRR() returned -24.83%.
Plugging the exact IRR into XNPV() using the daily cash flow, the result
is indeed close to zero. QED.

Don still wonders, reasonably, why XIRR() returns such an obviously
incorrect rate when the "guess" was missing.

I invite people like Fred Smith and Myrna Larson to comment on the
behavior of the Newton-Raphson method of approximation, or whatever method
Excel might use. We all know that these methods can take a wrong turn
under adverse conditions. But some details might be interesting.

In any case, I would call this a defect in the XIRR() implementation.

No, I am not disparaging your beloved approximation method. I presume
that it is working as well as might be expected.

Instead, I am disparaging the witless MS programmer who does not seem to
know how to write an "if" statement just before exiting the XIRR()
function, of the form: "if there has not been an error and the XNPV with
the last result is not close to zero, return an error, per the function
specification".

I am referring to the XIRR Help page, which states: "If XIRR can't find
a result that works after 100 tries, the #NUM! error value is returned".
Now, we might argue about what "close to zero" means exactly. But I am
sure that -43,338.86 does not meet anyone's reasonable definition. So
clearly, the XIRR() result does not "work", even it was found in fewer
than 100 iterations.

If XIRR() had returned the #NUM! error, as it should in this case, Don
might still have been perplexed. But at least his question would have
been much less mysterious; probably something to the effect of: "how in
the heck am I supposed to know what ``guess`` should be?", and "why does
Excel need this, but my HP 12C does not?". We've dealt with such
questions before.

The following is Don's original data and my monthly net cash flow
approximation.

Don's cash flow (my apologies for the poor alignment; there are too many
to adjust manually):

3/27/2006 -3,994.58
4/1/2006 871.42
5/1/2006 871.52
5/3/2006 -9,728.80
6/1/2006 870.51
6/2/2006 -4,864.40
7/1/2006 870.04
7/5/2006 -4,864.40
8/1/2006 869.06
8/3/2006 -4,864.40
9/1/2006 868.53
9/6/2006 -4,864.40
10/1/2006 868.53
10/4/2006 -4,924.67
11/1/2006 867.95
11/6/2006 -4,966.81
12/1/2006 866.79
12/4/2006 -4,966.81
1/1/2007 866.19
1/8/2007 -4,966.81
2/1/2007 866.19
2/5/2007 -4,966.81
3/1/2007 910.86
3/5/2007 -4,864.40
4/1/2007 910.20
4/5/2007 -4,864.40
5/1/2007 909.34
5/3/2007 -4,864.40
6/1/2007 908.50
6/4/2007 -4,864.40
7/1/2007 908.02
7/5/2007 -4,864.40
8/1/2007 907.87
8/3/2007 -4,864.40
9/1/2007 906.91
9/4/2007 -4,864.40
10/1/2007 905.77
10/3/2007 -4,924.67
11/1/2007 905.17
11/5/2007 -4,966.81
12/1/2007 904.60
12/6/2007 -4,966.81
1/1/2008 904.60
1/7/2008 -4,966.81
2/1/2008 904.79
2/6/2008 -4,966.81
3/1/2008 942.92
3/6/2008 -4,864.40
4/1/2008 941.97
4/3/2008 -4,864.40
5/1/2008 940.92
5/5/2008 -4,864.40
6/1/2008 940.48
6/2/2008 -4,864.40
7/1/2008 941.24
7/2/2008 -4,864.40
8/1/2008 941.24
8/4/2008 -4,864.40
9/1/2008 940.68
9/5/2008 -4,864.40
10/1/2008 942.05
10/6/2008 -4,924.67
11/1/2008 944.31
11/3/2008 -4,966.81
12/1/2008 945.74
12/3/2008 -4,966.81
12/28/2008 92,520.92

Monthly net cash flow approximation (my apologies for reversing the
columns):

-3,123.16 4/1/2006
-8,857.28 5/1/2006
-3,993.89 6/1/2006
-3,994.36 7/1/2006
-3,995.34 8/1/2006
-3,995.87 9/1/2006
-4,056.14 10/1/2006
-4,098.86 11/1/2006
-4,100.02 12/1/2006
-4,100.62 1/1/2007
-4,100.62 2/1/2007
-3,953.54 3/1/2007
-3,954.20 4/1/2007
-3,955.06 5/1/2007
-3,955.90 6/1/2007
-3,956.38 7/1/2007
-3,956.53 8/1/2007
-3,957.49 9/1/2007
-4,018.90 10/1/2007
-4,061.64 11/1/2007
-4,062.21 12/1/2007
-4,062.21 1/1/2008
-4,062.02 2/1/2008
-3,921.48 3/1/2008
-3,922.43 4/1/2008
-3,923.48 5/1/2008
-3,923.92 6/1/2008
-3,923.16 7/1/2008
-3,923.16 8/1/2008
-3,923.72 9/1/2008
-3,982.62 10/1/2008
-4,022.50 11/1/2008
-4,021.07 12/1/2008
92,520.92 1/1/2009


----- original message -----

"Don Kline" wrote in message
...
I have a XLS file I can send you. I don't know how to attach the XLS file
to
the discussion. Please advise how I can get this to you.


"JoeU2004" wrote:

"Don Kline" wrote:
I have a series of monthly transactions over several years.
I have used the XIRR function to find the ROR for each month,
each quarter, and each calendar year.

That's a neat trick, since XIRR only returns the annualized rate. I
hope that is what you mean. But I wonder if you are misinterpreting the
results from XIRR.


The client now wants a rate from inception. My expectation
was I would get an annual rate for the entire period. However
I feel that a -400% ROR is not accurate.

Is there anything different I need to do when the period is
greater than one year?

Yes. But I cannot tell you what that is because I'm not a mindreader.
If you post an example, you might get some help.