Dissecting the Dashboard

Monday, June 14th, 2010 by Charles Mayfield, CFP®


In our initial Chappell Mayfield Investment Dashboard™ post several weeks ago, we gave a broad overview of the proprietary tool that we, as financial planners, created to help our clients understand and evaluate their investment portfolio’s performance.  We would now like to go one step further by explaining each of the key components of the “Dashboard,” in an effort to show how each plays a crucial role in investment evaluation.

Dissecting the Dashboard: Part 1- Performance

Standardized performance gives us a quantitative view of how well a particular investment has stacked up against its benchmark, and makes it easy for one to compare similar investments. This critical piece to the Dashboard focuses on performance over the preceding quarter, 1, 5 and 10 year time periods. Performance is color coded to allow for a quick assessment of how any investment stacked up for the given timeframe. Green indicates outperformance versus the benchmark, Yellow indicates even performance against the benchmark and Red indicates underperformance versus the benchmark.

Performance versus the benchmark tells only part of the story.  Next, we must consider performance relative to other investments of similar scope and mission. Performance Relative to Peers compares the investment or manager to others with similar objectives by ranking them on a scale of 1 to 100 over the preceding 3- and 5-year timeframe.  Green indicates top quartile performance versus peers (1-25 rank), Yellow denotes performance in the next quartile down versus peers (26-50 rank) and Red is for performance in the bottom half versus peers (51-100 rank).

There is much to be learned by combining these two performance measures.  Studies have shown that many top performing managers spend at least some time in the bottom half of their peers.  A manager that is moderate or even conservative may never appear in the top quartile.  Then again, they may never appear in the bottom either.  These independent measures and facts are all taken into consideration with our overall assessment of performance.  A “home run” scenario would be to own the manager during a rise from the bottom quartile to the top.

A common mistake that many investors make is comparing the performance of a particular investment to the wrong benchmark or peer. Many investors associate market performance with the S & P 500 Index or Dow Jones Industrial Average and will use these when comparing their performance. These are common indices that are tracked on many investor websites and financial television programs. The mistake occurs when an investor holds up a particular investment against these benchmarks when not appropriate, as thousands of these investments have objectives completely unrelated, or uncorrelated, to either of these major indices. The Chappell Mayfield Investment Dashboard™ clearly notates which benchmark to use when gauging the performance of each portfolio holding to ensure a more relevant indication of relative performance.

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