The Tyranny of the Calendar

The invention of the calendar has allowed us to synchronize our lives, to plan events, and to mark milestones in our history. For better or worse, calendars are a fact of life that none of us can avoid. In the world of investments, however, the calendar can be the enemy of wealth creation.

The benefits of a calendar work well for a government needing to collect revenue, or retailers who depend on the holiday season for most of their sales. In fact, the school year has been designed around the agrarian calendar, even though very few people are employed in agribusinesses anymore.

In the investment world, viewing returns on a calendar-year basis or by the quarter is not particularly helpful, contrary to popular belief. The idea of quarterly reporting on investments was derived from institutional investors whose returns are evaluated, and fees paid, on a quarterly basis. Individual investors have no real reason to judge their returns on that timeframe.

Investments are best judged over complete cycles including both up and down strokes. Market cycles typically have no relation with calendar years; hence, what is the real value in evaluating returns in this manner?  We also know that the most volatile returns, and thus the least meaningful, are short-term returns. Yet, more out of habit than anything, that is how most investors view their returns.

A better way of gauging performance may be looking at it on a rolling return basis over one, three or five years. A rolling return will show returns, for example, from May 3rd of one year to May 3rd of the prior year. Viewing rolling returns encourages a longer-term look at investment performance. It places more value on long-term performance, which is as it should be. Viewing rolling returns also discourages daily or weekly viewing, which can be analogous to listening to static on the radio. Calendars are great for many things, but they can be less than helpful in viewing your investment performance.

Ogorek Wealth Management, LLC

Ogorek Wealth Management, LLC