You can't improve what you don't measure
And you can't measure what you don't know
“As the area of our knowledge grows, so too does the perimeter of our ignorance.” —Neil deGrasse Tyson
In this edition:
Some things to consider in reviewing your investment performance
Some things in the world of money that made notable moves in 2024
Some things I learned after watching a tree grow for a year
Also, a theory about fools.
EXPLAINER
Measuring investment performance is easy to overlook
A common disclaimer in the fine print of any investment product that you buy will read something like:
“Past performance is not indicative of future results.”And yet much of the marketing of investments to you is premised on…past performance.
This disclaimer is meant to warn investors against the dangerous assumption that past trends will simply continue. Past performance is important in evaluating past performance, but it is often the most accessible information available to make an investment decision in the present for most. But there’s more.
Financial services are also largely based on forecasts. Like weather apps. Whether those work depends on who you ask.
Here are 5 quick considerations to make when reviewing the performance of your investments:
Total portfolio growth: This refers to the growth in absolute value of your investments over time. It's simply a comparison between the value of your investments at a point in time versus the amounts you have invested.
Return against benchmark(s): Benchmarks give you a feel for how the overall market or a segment of it performed. They are often represented by an index (e.g. FTSE 100, NASDAQ or NSEASI). They are a quick & easy way to check your portfolio’s performance.
Inflation: REAL return is what you’re left with after considering the impact of inflation on your portfolio. At the very least, your returns need to exceed inflation otherwise you’re effectively ‘losing money’. If your portfolio returned 29% but inflation was 3%, your real return for the year is 26%.
Risk: You may have achieved or exceeded your objectives in the year BUT at what level of risk? Your portfolio growing by 26% in a year but with high risk may be less favourable than a 21% return with much lower risk.
Fees: Many people fail to consider the impact of fees on their total return. These fees include fund management fees, brokerage commissions and so on. Always look at your returns net of fees because they add up.
This list is a start to help you look at your investment statements a little more critically from now on.
Did I leave anything obvious out? Have a question? Let me know with a comment.
The bottom line
Green isn’t always good. Red isn’t always bad. It’s more nuanced than that…and depends who you ask.
Don’t take reports & statements at face value, only focusing on the big highlights. As the saying goes, the devil is in the details. Knowing what to look for makes reviews clearer and easier.
Remember, you can’t measure what you don’t know.
THE BUFFET
Bulls on parade
Here are 3 notable events that happened in and around the world of money in 2024 worth keeping in mind as the new year rolls in:
Bitcoin crossed $100k and hit an all time high of $108k in mid-December. With 2 days left in the year, it has returned 126% in 2024.
Gold hit an all time high of $2,800 in October. Here’s a quick watch on Why Central Banks Buy So Much Gold.
AI hype catalyzed performance of the ‘Magnificent 7’ tech stocks. And yes, there were several all-time highs.
It is also worth knowing that the US stock market capitalization now makes up about 60% of global market cap. Wherever you are in the world, consider the US in your 2025 plans.
Collect these dots. They will connect in the year ahead.
QUICK ONE
Who’s fooling whom?
In finance & investments, the Greater Fool Theory revolves around the belief that you can profit from overvalued assets as long as someone else (the “greater fool”) is willing to buy them at an even higher price. In this scenario, investors are not concerned with the intrinsic value of the asset—only with the hope that its price will continue to rise, fueled by market momentum and optimism.
Handy info to have going into a new year.
NOTES TO SELF
How growth works (generally or specifically)
In the year now past, I challenged myself at different points to do things aimed at long term gains.
I also became a first time houseplant owner. I acquired a dwarf jade bonsai. Low maintenance, they said.
Dwarf jades are slow-growing but can live for over a hundred years with proper care. But slow-growing is quite literal. A young plant may take several years to reach a foot in height.
My first challenge was to ‘simply’ keep it alive for a year.
Easy enough, right?
It depends who you ask.
Here are 4 quick reflections about growth from a year with my tree:
Growth looks slow (and boring) in the short term. It is only visible in hindsight. It is rarely visible overnight. The pursuit of growth requires patience.
You appreciate growth more with an eye for detail. Close observation will often provide new insights and help you understand the whole better.
Growth is anything but linear. And it is full of surprises. It rarely goes the way you expect it to, but it may if you release the need to be in control of all outcomes.
Growth creates new opportunities. As much as my little tree didn’t look bigger in a year, caring for it made me more curious. More questions led to more knowledge…and at last count, I now house 39 plants.
Growth is uncertain in the present. It is only reflected at a future compared against the past. And we all know that the future is uncertain.
For now, what’s certain is that my plant holdings have seen astronomical growth.
My bonsai & I survived a year together, and even where it wasn’t apparent, watched each other grow.
I shift perspective and wonder what it would report as its human housemate’s growth. If trees could speak, it may simply say of me, “How odd it is to be anything but a tree.”
Because what else is it to do, but grow as it does.
I’m reminded by my tree, of the words of Søren Kierkegaard:
“Life is not a problem to be solved, but a reality to be experienced.”
So how does growth work? It depends who you ask.
Endings give us an opportunity to reflect on the past.
Endings urge us to look ahead and try see what next.
Endings remind us that past and future meet and are made here now in the present.
Have the best end to the year possible.
AG
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