Why You Need To Stop Stressing Over Performance - And Start Stressing Over Other Stuff

Took a survey among my colleagues. Small sample-set, unscientific process and had absolutely nothing to do with our business…so take it for what it is.

“What were the must-haves when you purchased your laptop?”

The most popular answers (in no particular order):

  • Large screen
  • Portability
  • Speed
  • Affordability

So I dug-in a bit, “did you get the largest screen possible?” Well the answer was clearly “no” because if they did, it wouldn't solve their need to be portable.

And then, “does your computer have the fastest processor available to mankind?” Rhetorical question, of course – no chance you will find a computer crammed with 100GB of RAM that is anywhere in the ballpark of being considered affordable.

My point? Purchase decisions are based on lots of factors. ALL purchase decisions.

More importantly - why do you care?

Because as obvious as my conclusion seems to be, for some crazy reason, we continuously have investment managers vehemently disagree when it comes to investor purchase decisions. To them, practically the only factor that allocators care about is performance. “Put up numbers and money will flow…”

But there are plenty of situations where that is obviously not the case.

Example...I received a manager's materials the other day – the returns rocked! Average annualized net in the high teens over the last decade. Really impressive. However, looking down a couple of lines, it was hard not to miss the volatility number -- nearly 30%. Yow!! Is that something that you want in your portfolio? I am sure that plenty of hands would shoot up from the absolute return crowd. I would also bet that twice as many institutional investors wouldn't look beyond page two of the marketing deck.

Another manager with similar (but much more stable) performance put every dime into improving his model but not much else. When asked about things like operations, disaster recovery, investor servicing, even key-man risk…crickets.

It all counts.

But what if I am flat out wrong about all of this (i.e. performance is actually the only thing that matters), what will your investors do when you don’t perform?

By JD David