Unfortunately, clients (of whatever means) are capable of making poor choices in the selection of their individual or pooled investment vehicles.  This can happen for a variety of reasons including not being selective, allowing themselves to get sold to - instead of making an informed purchase, or using either overly simplistic or even misleading metrics.

In this regard, a major focus (even obsession) with some investors or their counselors is the measurement of short term backward looking performance (including absolute - but more often relative - returns versus some "benchmark", measurements of volatility/"risk", and even measures of so called out-performance or value added, e.g. alpha and sharpe ratios).  All of these metrics have sound theoretical and practical uses and can be useful tools if used in conjunction with other important data about the manager's skill and approach.  Like outstanding money manager Edward S. Lampert, however, we believe that "past performance is wildly overrated." 

This is so because like most summary statistics, performance data can be misused (or as someone once said, a little knowledge can be dangerous).  Especially harmfully, the data can be a crutch that lulls investors into a false sense of security, or prevents them from focusing on the many other factors as or more important in the identification of excellence and ability (or lack thereof)  in a money manager.

In our experience, most investors would be better served (i.e., enjoy better investment results with less risk) if they placed less emphasis on backward looking calculations of performance and more emphasis on factors like:

• The background, philosophies, character, methods and quality of thinking of the people who put the track record together; and
   
• The quality, composition, approach and safety indicated by examining the past and present portfolios they manage(d)

Those who bother, on any more than an occasional basis, to perform the above thought experiments may be surprised to discover differences between how managers or their marketers present or promote their offerings and what an intelligent analysis based on an independent assessment will reveal about the methods, quality, risks, past performance, and expected future results of that same managed vehicle.

With respect to our own results, we believe strongly that we need to establish and share the yardsticks by which we measure our own performance ahead of time, and then consistently apply and report how we are doing against these hurdles.  In this regard, we judge our own performance (both relative and absolute) over rolling three to five year periods.  We believe that shorter periods can be misleading or just random.  This will tend to especially overstate ability in periods when a rising market tide is lifting most boats.  However, cream does (eventually) rise to the top and good performance over an entire cycle usually results from some underlying competency or skill employed by the manager.

Having understood all of the above factors, readers (at least those who have not gone to sleep by this point in the discussion) may think we are skirting the issue at hand, so we want to make it clear that we both track and report our past performance.  We welcome clients to use this information in their overall assessment of our approach to intelligent investing.

Upon request, we can share the specifics of our past performance with potential clients.  While past is no guarantee of future performance, our past performance (including the track record of our founder) indicates that we deliver outstanding money management services since we have outperformed the market and many other alternatives since inception.   We did so by producing attractive absolute and outsized relative returns while maintaining significant cash reserves and a margin of safety. 

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For more information on our past performance, our approach to money management, and your unique situation and needs, please call or contact us.