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This blog is authored by an old multi-bagger blue chips stock picker uncle from HDB heartland!

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Thursday, 16 June 2011

How do you measure Opportunity Cost?

We often hear people saying that there is opportunity cost for not cutting losses or pay off your debts too early. So how do we really measure opportunity? Anyone?


I have one bank account that is dedicated to all stock transactions including cash flow from stock dividends. In this sense, I know every dollar and cent in and out of this account. So it is either money in the bank or stocks in the market.

Then, what is my opportunity cost between cash in the bank and stocks in the market?

  1. When I sold the stock, the proceed of the sales will back go into the bank to earn low interests.
  2. When I bought stock, the money moves from bank to the stock market and its value goes up and down according to market conditions.
  3. When I receive stock dividend, it will earn low interests until I re-invest it back to the stock market.
I measure CAGR of my portfolio and plot its daily value as Line Graph. (Some may use XIRR ; but I use CAGR since I rarely add capital so CAGR works well for me)

So where is my opportunity cost? Does opportunity cost really exist?

Read? Other articles related to "Measuring"

1 comment:

  1. How about using a benchmark.
    If u r in SG market, the STI returns perhaps?
    That could act like an opportunity cost reference.


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