Imp shortfall

does anyone have any tricks for remembering this? I just can’t wrap my head around the calculations; it all seems so arbitrary.

I actually had a really good way to remember this, which I kept secret while I was studying, but now I’m done, so I don’t mind letting it out. I will try to do a powerpoint version and put it up on youtube later this week - it really requires a visual representation. No way I can do it before tuesday or wednesday at the earliest, though.

chad - if you’re serious, that would be sweet.

for what it is worth, the CFAI material makes it much clearer than the Schweser text does

Took me longer to do this (but wanted to try out the tech part anyway), but hopefully it helps. I did this late at night so please don’t give me grief about sounding slightly sleepy and tripping over the some of the words at the end. I just didn’t feel like going back and rerecord it. or h t t p : / / t i n y u r l . c o m / q 3 x 6 l c

good post.

Wow Chadwick. this is fantastic. thanks!

Thanks bchad, but did the curriculum change at all? I just watched your video (nicely done btw) but I don’t think it matches up the same as how it’s described in the curriculum. For example, here is one taken from the CFAI book: Day 1 Shares of X close at $10 Day 2 Limit order 1000 @ $9.98 Close @ 10.05 Day 3 Limit changed to 1000 @ $10.07 700 @ $10.07 executed, $14 commission Close @ $10.08 They list: Realized profit/loss (market impact cost) as $14 Delay costs as $35 Missed trade opportunity costs as $24 Explicit costs as $14 So total implementation shortfall is $87 or 0.87% I think your delay costs box should only extend to the shares purchased and then the opportunity cost would extend up to the final day close and down to the original price. EX: …____________ 10.08|…|…| …|___________________ |…| 10.07|…|…| …|…Realized P/L…|.Missed Trade.| …|…|…| 10.05|___________________ |…| …|…|…| …|…Delay Costs…|…| 10.00|_________________________________ …700…1000 I like the direction your strategy is going, but I just wanted to make sure I was thinking it through right. Hopefully my makeshift graph makes sense.

Cr*p, you’re right. I was going by memory, and remembered it wrong. Sorry folks (I was a little less careful than I would ordinarily be because I figured someone would catch me if I didn’t remember it quite right). I just checked in my old CFA books, and wanderingcfa is right, the delay cost is only applied to executed shares. And I’d forgotten (or maybe was never quite clear to me) that the opportunity cost could use a price that was higher than the execution cost (it seems that the top figure to use for computing opportunity cost is a little arbitrary). I’ll redo the video tomorrow sometime, but read wanderingCFA’s chart.

Okay, glad to see I was not crazy. But seriously, that is a great way to think about it. Makes remembering all those damn equations pretty easy. I wonder if I draw a graph instead of the equations if they would still give full points (assuming it’s not a multiple choice).

I deleted the video until I can make a new one, just to make sure I’m not teaching people how to get a wrong answer. :wink: As for the exam, if your graph leads to the right answer, and the answer is clear it should probably be ok. But a graph by itself probably wont help.

bchadwick, please give us a shout when you post the corrected video… it will be very helpful. thank you. good catch, wandering… this is a reading i still don’t have drilled down.

cfasf1, if you get the chart and you can get it to click on how to construct it, these problems are extremely easy. I had to go back and try it out on a few questions, sometimes while looking at the answer to make sure I knew what I was doing. But I just tried it out on 4 questions with speed and ease. I love tricks like this to remember stuff.

OK, I got it corrected now. Unfortunately my voice is extra sleepy because it’s late at night here. Hopefully it doesn’t put you guys to sleep. New Video

the link doesnt work?

Grrr… The video is just a bit longer than the 10 mins that YouTube allows. It’s been processing an hour now… This one is 9 mins.

THANK YOU, bchadwick! I’m sure lots of guys here appreciate your efforts in helping us out.

Thanks a lot for the utube link. great, I want to try a CFA qn and see. Looks easier.

nice - thanks, Chad!

bchadwick great video we really appreciate it! I really like your powerpoint presentation. Would you possibly mind uploading it or emailing it to me and I will upload it to a website to share? By looking through the slides I can review more quickly than watching the video.