Performance Perspectives Blog

Tracking your performance

by | Jul 10, 2011

This weekend’s WSJ has once again provided us with a topic to address, specifically from Jason Zweig’s column, titled “Why We Can’t Tell if the Market is Half Empty or Half Full.” He points out that “For most investors, getting a clear picture of where your portfolio stands isn’t easy.” The key words here are “your portfolio.”

He later quotes Tom Chubb, a retired marketing executive who said “What I want to be able to do is to look at those different locations where my nest egg is stored and try to determine whether my financial advisers are doing a good job.” Here we want to evaluate the financial advisers.

Jason identifies a few sites that might help the investor, such as Moringstar’s, which has a “performance tab” where an investor can compmare their stock or ETF (exchange-traded fund) against the S&P 500, with dividends included. But would we really want to look at single investments? This has some value, no doubt, but the portfolio view is probably what most want to see. And if these investments are purchased and sold at different times, or in pieces, such a review won’t really do us much good.

Apparently Google Finance is considering a “total-return chart,” but they don’t have any plans to introduce one. Yahoo apparently has one “in the pipeline.”

What is it the investors are interested in? We’ve been through this a few times, yes? It depends on the perspective from which the question is posed:

  • How am I doing? We want a money-weighted result.
  • How is my portfolio manager or financial advisor doing? We’re talking time-weighting.

Modified Dietz isn’t a difficult return to calculate, and I’ll be happy to provide anyone who’d like it a basic spreadsheet that can be used to derive these returns. They can then be chain-linked to develop an approximation to the true, time-weighted return, which will no doubt suffice for most investors who want to gauge the performance of those they rely on for their investments. For their own performance (i.e., money-weighting), they can rely upon Excel’s built-in IRR functionality. We can provide guidance on how to do this, too. It’s not really that hard. 

Oh, and for Mr. Chubb and others like him, we are finding more and more broker/dealers (several of whom are our clients) providing their clients with rates of return. Granted, they’re often only from one perspective, but this solves at least one of their needs. And many can consolidate the holdings from other managers, so that the investor sees a single report that covers all their investments.

It really shouldn’t be that hard, should it? We don’t think so.

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