Investment Performance Measurement:
"The fact that investment reporting often only reflects the asset manager’s perspective raises an obvious rhetorical question: Does investment reporting as currently practiced really meet the needs of clients? The next questions are not rhetorical: How will the investment industry close the expectations gap and give existing clients investment reports prepared from their perspective, and who will lead the effort?"
Showing posts with label investment performance measurement. Show all posts
Showing posts with label investment performance measurement. Show all posts
Wednesday, August 12, 2009
Tuesday, August 11, 2009
Re-Reading "U.S. Equity Styles Indexes" from The Research Foundation of AIMR
I was struck by this blurb within the discussion of the valuation effect on stock over- and under-performance:
"...the surprise registered by academic researchers in response to the discovery
of the value and size effects is hard to overstate. More than a decade of
efficient market and CAPM orthodoxy had convinced most that the cap-weighted
market portfolio could not be beaten, at least not with a simple, easy-to-follow
decision rule..."
The field of investment performance measurement could be said to be as young as the CAPM and efficient market theories were when Reinganum, Banz and Basu discovered the valuation effects. That could indicate there are accepted practices and methodologies within performance measurement and presentation that are currently viewed with similar orthodoxy as the CAPM and efficient market theory were in the late 70s.
"...the surprise registered by academic researchers in response to the discovery
of the value and size effects is hard to overstate. More than a decade of
efficient market and CAPM orthodoxy had convinced most that the cap-weighted
market portfolio could not be beaten, at least not with a simple, easy-to-follow
decision rule..."
The field of investment performance measurement could be said to be as young as the CAPM and efficient market theories were when Reinganum, Banz and Basu discovered the valuation effects. That could indicate there are accepted practices and methodologies within performance measurement and presentation that are currently viewed with similar orthodoxy as the CAPM and efficient market theory were in the late 70s.
Thursday, August 6, 2009
Spreadsheet Certainty
When Precision Is Only 92.11567% Accurate - WSJ.com:
"...decimal places lend the aura of authority and the veneer of verisimilitude. So the modern world is awash in squishy numbers wearing the many-figured garb of faux precision."
One would believe this does not really apply to investment performance measurement, but one would be incorrect. Think about what goes into the valuation of the numerous asset-backed securities and real estate.
Infrequent sales, illiquid markets, mark-to-model....All lay at the foundation of the values used to calculate security returns, which role-up into composite returns which are presented to the nearest basis point and provide a potential investor with "an aura of authority".
Interestingly, there was a book review in yesterday's WSJ that tapped into a similar vein. Philip Delves Broughton reviewed Matthew Stewart's polemic against management consulting "The Management Myth". According to Broughton, "Mr. Stewart argues that the profession is built on a science of management that is both narrow-minded and intellectually bogus....The business world...has become so obsessed with its own perverse value system and view of human nature that it is undermining the “commons” of society."
"Narrow-minded and intellectually bogus" are ways of describing foundational assumptions the author disagrees with. In the current environment of anger and disillusionment with Wall Street, the analogy to the assumptions underlying asset-backed securities could be described similarly.
Agree or disagree, and I am prone towards just the philosophical curiousity of the argument, what both do have in common is a foundation rooted in the "aura of authority and the veneer of verisimilitude" provided by the easy-to-read spreadsheet result.
"...decimal places lend the aura of authority and the veneer of verisimilitude. So the modern world is awash in squishy numbers wearing the many-figured garb of faux precision."
One would believe this does not really apply to investment performance measurement, but one would be incorrect. Think about what goes into the valuation of the numerous asset-backed securities and real estate.
Infrequent sales, illiquid markets, mark-to-model....All lay at the foundation of the values used to calculate security returns, which role-up into composite returns which are presented to the nearest basis point and provide a potential investor with "an aura of authority".
Interestingly, there was a book review in yesterday's WSJ that tapped into a similar vein. Philip Delves Broughton reviewed Matthew Stewart's polemic against management consulting "The Management Myth". According to Broughton, "Mr. Stewart argues that the profession is built on a science of management that is both narrow-minded and intellectually bogus....The business world...has become so obsessed with its own perverse value system and view of human nature that it is undermining the “commons” of society."
"Narrow-minded and intellectually bogus" are ways of describing foundational assumptions the author disagrees with. In the current environment of anger and disillusionment with Wall Street, the analogy to the assumptions underlying asset-backed securities could be described similarly.
Agree or disagree, and I am prone towards just the philosophical curiousity of the argument, what both do have in common is a foundation rooted in the "aura of authority and the veneer of verisimilitude" provided by the easy-to-read spreadsheet result.
Monday, July 20, 2009
Not Smelling Right: Auto Makers' Firmer Pricing Risks Denting Sector's Recovery
Auto Makers' Firmer Pricing Risks Denting Sector's Recovery - WSJ.com:
"Firm pricing may have worked for the auto industry when a sales level of 16 million cars and trucks a year in the U.S. was considered normal; now the annual-sales rate is less than 10 million."
A couple years ago, analysts assumed 16 million in annual auto sales was a legitmate number. Now that legitamte number is 10 million. A 37.5% drop points towards the annual sales rate as a figure that doesn't pass the smell test.
Adjustments for seasonality and annualizing one month rates are likely the two big factors that "offend" an investment performance measurement expert. Valuing portfolios for large cash flows covers the seasonality i.e. surges in assets under management due to IRA payments in April, and an outright ban on annulaizing returns less than one year covers the tricks on one-month sales' rates.
Rationalized or not, I can't shake the feeling the car and trucks annnual sales rate is too volatile to be accepted at face value.
"Firm pricing may have worked for the auto industry when a sales level of 16 million cars and trucks a year in the U.S. was considered normal; now the annual-sales rate is less than 10 million."
A couple years ago, analysts assumed 16 million in annual auto sales was a legitmate number. Now that legitamte number is 10 million. A 37.5% drop points towards the annual sales rate as a figure that doesn't pass the smell test.
Adjustments for seasonality and annualizing one month rates are likely the two big factors that "offend" an investment performance measurement expert. Valuing portfolios for large cash flows covers the seasonality i.e. surges in assets under management due to IRA payments in April, and an outright ban on annulaizing returns less than one year covers the tricks on one-month sales' rates.
Rationalized or not, I can't shake the feeling the car and trucks annnual sales rate is too volatile to be accepted at face value.
Subscribe to:
Posts (Atom)