Buy & Hold Benchmark does not reinvest dividends
Author: 123blee9
Creation Date: 7/24/2017 10:16 PM
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I'm attempting to better understand the logic involved with WLP's Buy & Hold performance results.

As such, I wrote a simple code that enters on the 1st bar and never exits.

Example 1

Initial Capital = $100,000
Margin = 1:1
Cash return = 0%

I was surprised to learn dividends are not reinvested. That did, however, answer my question as to why Buy&Hold for SPY = 88% stock exposure. This means the "By Period" return Tab does not represent either 1) total return or 2) capital gains return. Rather, it represents a mixture of capital gains and cash returns. I may have missed the option, but I would highly suggest the ability to reinvest dividends. The primary reasons for this suggestion are total return is a more representative benchmark, and strategies that reinvest dividends are being compared to Buy&Hold performance that does not reinvest dividends (apples vs. oranges). Also, the geometric mean return is presented as the Buy & Hold average return metric on he Performance tab. Geometric mean returns involve reinvestment.

Example 2

Initial Capital = $100,000
Margin = 2:1
Cash return = 0%
Margin interest = 8%

Oddly, the "By Period" returns tab produces return values identical to the unlevered (No margin) case in Example 1, though the "Annualized Gain" on the Performance tab (2:1 margin ratio) differs from the unlevered (1:1 margin ratio) "Annualized Gain." I must admit, I do not understand the WLP logic in this example. With 2:1 margin, only $50,000 in cash is required for a $100,000 stock investment. Approximately $200,000 in margin interest is associated with the Buy&Hold scenario (1/1/2001 to 7/24/2017) which seems far too high at an 8% interest rate. The $50,000 initial margin loan should remain constant throughout the analysis period, with nominal dollar interest being constant by year under the 8% constant interest rate assumption. With daily interest ~ (0.08/365)($50,000) = $10.96, annual interest = only $4,000/year.

Please provide details as to how the levered Buy&Hold daily values are calculated. It should be quite simple for one to replicate.

Example 3

Raw Profit Mode
Fixed Dollar (= Initial Capital when only 1 initial trade exists) = $100,000

Incorrectly, the Equity Curve tab terms Net Profit as Equity. Additionally, drawdown is incorrectly applied to Net Profit instead of Equity resulting in massive, and incorrect, Drawdown tab percentages (600+% in the case of SPY).
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Attachments to the above.
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2 additional charts.
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Re: Example 1
I was surprised to learn dividends are not reinvested.
They could be reinvested if a B&H Strategy could detect the dividend stream and create new B&H positions. However, due to the way Portfolio Simulations operate, this is probably not possible without going through "lots of hoops".

Re: Example 2
Help > Preferences > Performance Visualizers > Performance > Buy & Hold > B&H Calculation Notes: Buy & Hold applies the margin setting....

Re: Example 3
In Raw Profit mode, the conceps of starting equity and margin do not exist. See User Guide: Reference > Data Panel > Position Size Control > Raw Profit Mode
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Please provide details as to how the levered Buy&Hold daily values are calculated

Post #11 has code that replicates the WL buy hold calculation in a DataSeries. Example 1 is the standard calculation so you may comment out the others.
Interacting Dynamically with Portfolio Buy&Hold Equity