MEASURING YOUR INVESTMENT RESULTS

All That Matters are the Results

SUMMARY:

Are you using a disciplined and consistent process to measure your investment results? Most people do not and, therefore, they have no idea how their investment strategy is really performing. Everyone should be comparing their investment results to the benchmark S&P 500 over long periods of time.

Investing is a numbers game, and it requires a disciplined and consistent method to measure results. No one does this the right way. Your investment professional doesn’t do this.

People like to track their investment results casually or even emotionally, not empirically. Many people have a rough idea of how their investments perform over time. It is on the statements we all receive. But they don’t compare their results to standard benchmarks like the S&P 500. If you have nothing objective to compare your results to, how do you know how you are doing?

I hear the following types of replies when I ask people about their investment performance:

• “We have a gal (or guy) who is great. They have a knack for picking the right stocks. He/she got us into XYZ company two years ago and it has done really well.”

• “I just looked at my statements and it showed that my investments had a 26% return over the last two years. I thought that was really good.”

• “I’ve been using my person for the last ten years and I am very happy. They are beating the estimates from my retirement plan we developed ten years ago.”

• “I do all my investing myself. I made a lot of money on lithium battery stocks (or marijuana company stocks, etc.) in the last couple of years."

But when you ask them how their entire portfolio has performed when compared to a benchmark like the S&P 500 over longer periods of time (3 years, 5 years, 10 years), you either get blank stares or mumbles. These are the same people who spend hours upon hours on the internet comparing prices on vacuum cleaners trying to save $50. But when it comes to tracking something that could be costing them hundreds of thousands of dollars or even millions of dollars, they don’t know and usually don’t want to know.

The above quotes are what we would call anecdotal evidence. You hear about the good stock picks, but you don’t hear about the ones that weren’t so good. And if they are comparing their results to the estimates created by their financial advisor, that is not the right comparison. Most investment advisors use conservative estimates like 4% or 5% per year in their financial projections because they don’t want their clients to run out of money. This is a good planning strategy but is not how you should be measuring results. Actual performance is different. An all-bond portfolio should generate 4% per year in the long term so it is ridiculous to compare total long term investment performance against bond performance. Do not compare your results to conservative financial plans that are designed to make sure you don’t run out of money.

People were happy with their returns for the ten years between 2012 and 2021. This was a terrific time in the stock market. The S&P 500 had an annual investment return of 15% per year without dividends and 17% per year with dividends reinvested over this same period. If someone had just invested all their long-term funds in an S&P index fund, they would have seen their investments quadruple in value over the ten-year period. $100,000 would have grown to $400,000 over those ten years. If people saw the value of their investments with their investment advisor double over the same time, they were probably happy. But if they knew that they really performed half as well as they should have, maybe not. And they are probably paying that advisor close to 1% per year for their expertise.

You should compare your investment results for your entire portfolio (not just your stocks) to the performance of the S&P 500 every year. Feel free to look at it, but performance comparisons over shorter periods of time (6 months, 3 months) are meaningless. One year is not enough to judge investment performance. Stock pickers can get lucky in a particular year. We need sustained performance over the long haul from our investment portfolios. A better evaluation begins with three years of results, but even that can be a little short sighted. A true picture or better indication of performance results emerges with five years or ten years or even 20 years of performance. Remember that only 8% of highly paid and expert mutual fund managers beat the S&P 500 over five years. That number drops to less than 1% at ten years and zero beyond ten years. I sincerely doubt that you or your investment advisor are better at stock picking than the highly compensated fund managers that have teams of highly trained analysts supporting them.

This table below represents the actual trading results of the BB&H system for the last three years. This is exactly how you want to track your investment results. You can see that the BB&H system outperformed the S&P 500 by two and a half times for the last 3 years. As we mentioned previously, the 2020 results which accounted for most of the overperformance was an aberration that was due to the unusual activity in the stock market for that year. Results for 2022 have been exactly as we would have expected for a bear market. The BB&H system has incurred a loss for the year but a much smaller loss than the S&P 500. You should construct a table like this for your investment portfolio from your investment statements. These results are all that matters at the end of the day.

	RESULTS ANALYSIS
	BB&H	S&P 500	DIFFERENCE
2022 (at 11/4)	-8.3%	-21.0%	12.7%
2021	21.4%	27.1%	-5.7%
2020	58.3%	16.1%	42.2%
3YR. TOTAL	71.4%	22.2%	49.2%

All professional and serious investors use the S&P 500 as the standard benchmark for comparing investment results. Because most people don’t do this type of comparison, they have no idea how their portfolio is performing. They end up using the casual or emotional quotes that we listed above. I don’t want you just thinking that “my advisor is great, he/she knows how to pick winning stocks.” Just look at the facts. If your results are significantly below the results of the S&P 500, you need to change your investment strategy and approach. Some money managers may have built you a conservative portfolio that is only down 12% or 13% this year, which is very good, but you need to also look at how that portfolio performed in strong markets like 2020 and 2021. The three year or five year or ten year results are what really matters. You need a strategy that performs well in all market conditions. I challenge you to go back to 2012 and to compare your investment portfolio returns against the S&P 500 even without dividends.

It is so easy to buy an S&P Index fund or a Nasdaq index fund. You don’t need to pay anyone to manage your investment portfolio when you manage your investments this way. It is simpler, easier, and less expensive and, more importantly, you will get better investment returns. Nobody beats the S&P 500 over the long term. When you use this strategy along with the BB&H system, you will blow away the results of the top money managers on the planet.

Be well,

Phil

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Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.