CAGR and Risk Adjusted CAGR (+ Calculator)

A couple of days ago, Brianl3 published a great Blog Article where he described a very simple process to calculate the Compounded Annual Growth rate we use so much on this set. As most of you already know, this figure represents the smoothed growth a set has had over its entire life since being released, and can be usually used to get a fell of how well it has done compared to some of the others.

Now, below you will find an attached Excel spreadsheet with an incorporated CAGR calculator, where you will be able to input the numbers you are interested in evaluating and the program will take care of the calculations for you. As Brianl3 mentioned in his article, you will only need to know and input the Beginning Value, Ending Value and the number of years the set has been on the market

Also, I wanted to add just a couple of things that you may find useful when investing in LEGO that can be calculated from the same CAGR formula. First, by playing around with the formula you will be able to determine the projected future value of a set according to you what you expect its CAGR to be (Something Brian also mentioned in his article). This calculation can be extremely valuable especially if you take a look at comparable sets and are able to make an educated guess about how close a specific set may follow that performance. When doing this, it is extremely important to remember that CAGR is only a 1:1 comparison when the sets have been out for the same time period, otherwise you need to make adjustments to account for the variation.

Another way you can utilize the CAGR formula is to determine how many years will it take for a set to reach a particular value given a specific CAGR. For example, by knowing the set's beginning value, expected final value and CAGR, you will be able to tell how long you would have to wait for it to reach that figure you are looking for. If you make realistic assumptions you will also be able to use to plan some of your holding periods or whether an investment is worth it to you or not.

These two applications to the CAGR formula explained above are also included in the Excel spreadsheet you will find attached to this article. I hope the ability to just input the figures without having to worry about the math will allow you to use the statistic more often to make more informed choices in your future investments.

One last thing I included there, even though it requires more calculations and it is a little more advanced than the rest, is the risk adjusted CAGR. What this calculation does is take into account the Standard Deviation figure you learned to calculate on my previous Blog Article into the CAGR formula, therefore involving the volatility of the set/theme into the ending results. For example, if the CAGR of the entire CITY theme is 20% and the standard deviation is 12%, then the actual Risk Adjusted CAGR ends up being slightly above 17.5%. As you can see, the higher the volatility (risk) of an investment, the lower the risk adjusted growth rate is going to be. This measure can be very helpful when considering the impact of risk in your expected returns and when comparing sets/thems using CAGR.

I hope that most of you will at least take a look and start using all of these measures when planning and evaluating your investments. They can really make a difference
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Note on Excel Attachment: As said before, you will find 4 different calculators in the spreadsheet. The inputs are self-explanatory and you have been dealing with them for probably a long time. The only thing you need to remember is to input the standard deviation as a decimal number when calculating the risk adjusted CAGR and you will be good to go.

Note 2: Numbers in the Excel spreadsheet are current 10179 UCS Millenium Falcon figures. Except for the standard deviation.

Thanks for reading!