What is a performance record?
A performance record shows a firm’s or portfolio’s
investment results over a period in the past. It is a
type of “report card” for a firm or portfolio, and has
become common in the investment industry.
Does P.R. Herzig & Co. maintain compliance with CFA
No. We have tracked the time-weighted performance of
individual accounts since the mid 1980s, long before it
was common to do so. However, complying with all
the technicalities of CFA Institute PPS® and GIPS® would require
us to hire an investment consultant to “scrub” data
going back 10 years or more. We believe our presentation
gives a fair, accurate, and complete picture of our
performance. Rather than repackaging the past, we prefer
to focus our resources on making money for our
individual and small institutional clients in the
present and the future.
Time-weighted calculations remove the effect of
contributions and withdrawals, giving a clearer picture
of an investment manager’s performance. Without these
adjustments, a portfolio that happened to receive a
large contribution just before a market upturn would
look different from an account that received a similar
contribution at a different time, perhaps just before a
How do I tell a good performance record from a bad one?
It is not as easy as it seems. The numbers may look
good, but the market may have done even better, much
like getting an “A” on a report card when everyone else
in the class got an “A-plus”. Usually you will want to
compare the investment returns to an appropriate
benchmark, similar to grading on a curve.
What is an appropriate benchmark?
An English test score should be graded on a curve of
other English scores, not math scores. Similarly, the
nature of the investments determines the right
benchmark. Performance presentations for portfolios
holding mainly U.S. stocks often use a stock market
index such as the S&P 500 as a benchmark.
Do numbers that “outperform” or “beat the benchmark”
mean the manager is hot?
Not necessarily. Investing is a more random process than
studying English or math, meaning that results are less
predictable. Outperformance, particularly over
relatively short periods of time, could simply be the
result of chance. Or choosing the wrong benchmark. Or
taking lots of risks.
How do I tell if the firm or the manager is taking a lot
There is no easy way. Individual holdings that look
risky by themselves can be reasonable investments in the
context of a portfolio. Good companies can be risky
stocks. Bad companies can be good stocks. Investment
consultants have devised formulas to measure return in
relation to risk.1 The more variable of the
returns, so the theory goes, the higher the risk. If the
numbers are all over the map, swinging even more than
the market, then the manager may be taking more risk
than the norm. Use of margin lending, or other forms of
leverage such as certain derivatives, can also indicate
If a manager or firm has outperformed for a long time,
does that mean outperformance will continue?
Not necessarily. After expenses most managers
underperform the market averages over time. The phrase
at the bottom of this page, mandated by the SEC, appears
to have a strong empirical basis. Numerous studies
suggest that managers who outperform in one period are
no more likely than other managers to outperform in
Then where is the value in looking at performance
In getting a sense of a firm’s or manager’s approach,
and judging whether it fits your individual situation.
PAST PERFORMANCE DOES NOT GUARANTEE
1The two most common are
the Sharpe ratio and the Treynor measure, rarely used
for presentations to individual investors.