I’m in Toronto for a couple days teaching a performance class for a client. And, as often happens, a thought occurred that seemed interesting.

Peter Dietz introduced the “original Dietz formula” in 1966, which treats cash flows as occurring mid-period; this was adjusted several years later to day-weight the flows (what has become known as the “Modified Dietz Formula”). Why didn’t he introduce this earlier?

Also, in 1968 the Bank Administration Institute pointed out that the Exact Method (where we revalue portfolios whenever flows occur) is the best approach to time-weighting. And so why didn’t they encourage firms to use it sooner?

In both cases the answer is the same: technology. In 1966 and 1968 we didn’t have personal computers, spreadsheets, or even calculators. No doubt many folks calculated returns by hand (math by hand? perish the thought!). To do a mid-point method is pretty simple by hand but to add day-weighting could complicate the process quite a bit.

And to use the Exact method would have required access to daily prices: in the mid ’60s? Right! Forget about it!

Makes sense, yes?