Value Investing – Monitoring Performance (Lesson 17)

Monitoring PerformanceI think it is an immutable law in business that words are words, explanations are explanations, promises are promises – but only performance is reality. – Harold Geneen

Monitoring performance is the single best tool to ensure success with value investing. Comparing results against expectations provides the basis for good decisions. In business, this is known as the feedback loop. In effect, a variable input is changed, results are recorded, compiled and reported in a understandable format. Any unexpected results are analyzed and input changes are implemented. The pattern is repeated. The end goal is to generate continuous improvement. With business, improvement is stated in the form of profit; with investment funds, it is stated in the form of  percentage of return on the overall invested capital. Thus, managing an investment fund is just like operating a business; the goal is to improve overall performance.

Throughout this series of lessons in Phase One of the program, it has been stated and reiterated several times. The goal of value investing is to generate returns that far exceed the returns of several indices. A value investor should expect at least a return on their investment in the mid-twenties as a percentage per year. The real goal is to generate 30% plus with returns. If the investor does their research properly and adheres to the four principles of value investing, achieving 30% plus per year on average is doable. But without monitoring performance of the fund, an investor cannot make the necessary timely adjustments to achieve the annual goal.

There are three different levels of monitoring with an investment fund. The primary level includes the decisions and status of the respective buy and sell points for each transaction within the investment fund. Here, the goal is to ensure that each respective company level purchase is adhering to the respective parameters of their pool’s buy/sell model. How is each position performing? The next level is

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