Return, in plain numbers
A return is how much something grew or shrank, as a percentage. A return of 18% turns 100 into 118. A return of minus 7% turns 100 into 93.
That is all the "if you had invested $100" sentence is doing: applying the percentage to a round number so it is easier to picture. On Arithmos those sentences are always calculated from the price history, and they show losses in exactly the same way as gains.
The period changes everything
Pick a different start date and you get a different story. A portfolio can be up 3% over two weeks, down 10% over three months and up 40% over three years, all at once.
Very short periods mostly reflect news and mood, not whether the idea is any good. That is why Arithmos offers the same fixed set of periods for every portfolio, rather than showing whichever one looks best, and says so when a period is too short to mean much.
Compared with what?
A 15% return sounds good until you learn the wider market did 25% in the same period. A benchmark is the yardstick you compare against, most often the S&P 500, which is roughly the 500 largest US-listed companies.
Beating the benchmark over one period does not mean an approach is better. It may simply have taken more risk, and risk tends to show up later.
Real results and simulated ones
A backtest takes a list of companies chosen today and works out how that list would have done in the past. It uses real prices, but it has a built-in advantage: we already know which companies went on to do well, and those are the ones people pick.
Results since a portfolio was actually made are different. The companies were fixed first and the prices came afterwards, so nothing about them is hindsight. Arithmos labels every figure as real or simulated for this reason, and marks the day a portfolio was made on its chart.
The worst fall
Two portfolios can end in the same place after very different journeys. One climbs steadily. The other halves along the way and then recovers.
The maximum drawdown is the biggest fall from a high to the following low. Ask yourself honestly whether you would have held on through it. Many people do not, and selling at the bottom turns a temporary fall into a permanent loss.
What the numbers leave out
Performance figures on Arithmos are shown before dealing costs, platform fees, currency conversion and tax. Your real result would be lower.
None of it is a forecast. Past performance, real or simulated, does not tell you what happens next.
The risks
- Hindsight makes simulated results look better than anyone could have achieved at the time.
- A short run of good results says very little, and can reverse quickly.
- Costs and tax reduce every figure you see quoted before them.
Try it yourself
The quickest way to understand a portfolio is to look at one. Here is how to turn this guide into something you can inspect.
- 1
Start from the idea
The button below opens the builder with this guide's idea already typed in. Change any part of it: the number of companies, the countries, the limit per company.
- 2
Read the reason for every company
You get a list of companies, how much of each, and a plain-English reason for each pick. If one looks wrong to you, you can ask for it to be changed.
- 3
Look at the bad years, not just the good ones
The portfolio is replayed against real past prices. Check the biggest fall along the way, and ask yourself whether you could have sat through it.
- 4
Decide for yourself
If you want to act on it, you buy the shares yourself through your own broker. Arithmos never holds your money or places trades.
“The 20 largest companies in the world, the same amount in each, so I can see how a simple spread would have done.”
Browsing portfolios other people have published is free. See pricing for what building your own includes. A tested result is a simulation using past prices. It is not a forecast and not a recommendation.
Common questions
What is a backtest?
A simulation of how a portfolio would have performed in the past, using real historical prices. It is useful for seeing how bumpy something was, but it benefits from hindsight because the companies are chosen with knowledge of how things turned out.
Why does Arithmos show a two-week figure at all?
Because it is often a real result rather than a simulated one: for most portfolios the last two weeks happened after the portfolio was made. It is still far too short to judge an idea on, and the page says so.
What counts as a good return?
There is no fixed answer. It depends on the period, on what a simple alternative such as a broad tracker did over the same time, and on how much risk was taken to get there.
