Accounts Restatement

As I am tidying up my accounting spreadsheets for the end of 2006 I am also fixing some issues from the last several years. The major issue was loans I made to friends in 2002-3 which I then cancelled in July 2004. I have now restated the loan payments to those friends as consumption expenditure for those periods. This results in lower net worth and higher expenditure in the 2002-4 period but also higher estimated investment returns as a given investment return is now attributed to a smaller capital base. I've gone back and updated all my NetWorthIQ entries. The following chart shows the MSCI World Index vs. an equivalent index for my own investment portfolio over the last decade:



Initially I was conservative and underperformed the index and then in recent years have generally outperformed the index - catching up to the MSCI index and then tracking it more or less. This pattern is also shown in the next chart which displays estimates of the alpha and beta of my portfolio over the last several years:



Each alpha and beta pair is estimated on 3 years of monthly returns data. Generally, my alpha - my excess risk-adjusted return - has tracked upwards. In earlier years I subtracted value while in recent years I have added 10-24% return above the market rate of return while taking relative risk into account. The linear regression line tracks this learning curve.

The final picture shows rolling twelve month totals for earning (salary etc. plus all investment returns on non-retirement and retirement accounts) and spending for the last 17 years:



The main feature is the lack of correlation between my earning and spending. I don't spend a lot more now than I did when I was a graduate student in 1990-93. And, these data are NOT adjusted for inflation. I spent much more than I earned in that period. The two big bumps in the spending profile are the periods when I moved to Australia from the US (1996) and then back to the US (2002). From October 2001 to August 2002 I was dependent on investment returns which at first were positive and then very negative. This combined with rising expenditure - including two round the world trips in three months in January and March 2002 resulted in the big fall in net worth in that period.