We conduct literally hundreds of investment progress report meetings during the course of a year, which means that we've conducted literally thousands over the course of the 30 years that I've been in the financial services profession.   

Because we're often retained by Client's to manage their various investment programs, "performance" is something that remains vitally important to our Clients and ironically, it continues to dwindle in importance to our firm. But, with good reason. Let me explain.  

Investing is a zero sum game. Money does not get created in the day-to-day activity of the market. For every investor that makes $100, another investor must then by design, have lost $100.  That's just the way it works. Thirty years ago, more than 90% of the trades placed on Wall Street were placed by individual investors. Today, only about 3% of the trades on Wall Street are placed by individuals, with institutions (investment banks, banks, brokerage firms, mutual funds, etc.) placing the other 93%.  Part and parcel, that's why it's become almost impossible for mutual fund managers to beat the market. They are the market.  

The likelihood that significant and repeatable "out performance" (performance above the market averages) will happen only all to infrequently lies in the heart of the zero sum game concept. Your manager may outperform in one year, but then may never outperform again.  And, the math shows that when they do outperform, it will never be by enough to have made up the countless years of "underperformance." Hence, the popularity of index and ETF investing. 

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So, the real issue becomes this; what can be done to make sure that you're at or near the top in most markets?  Well, it relies much more on your investment process than it does your clairvoyance, predictive ability or research.  But what constitutes a sound investment process?  We happen to believe that a successful investment process is the one that we've built for the Client's of our firm.  

  • Has a Client's risk taking or risk aversion been appropriately measured
  • Are investment outcomes tied to specific successes as determined by the Client? 
  • Are the lowest cost investment options being used whenever and where ever they can so as to minimize the drag of "internal" costs?
  • Are tax efficient investments being used so as to minimize the drag of "external" costs?
  • Is there a specific methodology that the firm uses to "rebalance" portfolios at periodic levels during the course of a year, and; have those rebalance policies been tested to prove that they don't merely create activity who's costs will out weigh the value of the rebalance process? 
  • Has asset location been taken into account, are the right investments owned in the right accounts? 
  • Does the Client have adequate liquidity to fund emergency needs in cash or cash equivalent holdings? Has that emergency threshold been established after thoughtful conversation with the Client where norms and rules of thumb have been replaced by the Client's specific comfort levels and desires? 

The list could go on for a bit but doesn't really need to, because the key is "Process" not product. Being a successful investor involves a methodology that can be defined and employed on a regular and recurring basis.  

Because the disclaimer that appears on all investing materials, "past performance is no guarantee of future results" it's easy to see why an overt focus on performance is a failed "flight plan" to follow.