Then it was discovered the $7,000 were his best months; not the average per month...
Hold this thought.
It never fails to tickle me pink when I read about self-professed long term "investors" are so enthused into comparing annual performance returns, benchmarking this, benchmarking that.
It can become like during the Cultural Revolution in China.
"Next year my annual production will be 10% higher than last year!" village A chief shouts.
"Our village will hit 20%!!!" exclaimed village B chief with an even louder voice.
Village chief C stands up in a superman pose, one arm on his hip and the other pumped up to the sky, "Our village will strive for 50% increase!!!" (Is this or-yi-or Tarzan power or what?)
Everyone claps; everyone cheers!
Long term benchmarking for long term investors
I often poke this CW qian-bei whenever he writes about goal settings and KPIs. That's because it's a wonderful tool used by land owners and puppet masters on their minions. But why would free man use it on themselves? (That's another story for another day)
|Long Term Benchmarking for Long Term Investors|
But I have to give credit where credit is due. His kung fu deep or what?
Do you judge the performance of a marathon based on the timing of the first 2.5 km?
Annual performance results are merely milestones; not destination.
The minimum period for CAGR is about 10 years - around 2 Bull/Bear cycles.
Huh? So long... No fun one!
Well, if you want bragging rights that you beat Warren Buffet and Peter Lynch last year, don't let me stop you. Like they say, face is what others give you; shame is what you brought upon yourself. Cultural Revolution benchmarking! Who shouts the loudest wins (just don't ask about delivery...)
Far from being a party pooper, if you starting your journey, just have fun and make as many mistakes as you can during the early stages of your journey. Numbers per se don't mean as much as the learning along this journey of yours.
Whether your strategy today is dollar cost averaging, buying into low cost index funds, dividend stocks investing, DIY value or growth investing; it's mostly based on trust.
A day will come when you will have your own mind-flip, epiphany, paradigm shift, "a-ha" moment or whatever you choose to call it.
That's when you can verify the actual results of your trust.
Trust but verify.
This is the time you either exclaim "This shit really works!", or you go dejectedly "I have to make a change... This is not working as well as I thought...."
If anyone and everyone can do it, we would have to import more foreign talent as no Singaporeans would be working after 40. Or?
Short-term benchmarking for short term traders
Traders are more practical. Especially if trading full-time. You can't buy anything with percentages, so it's always about "show me the money!"
Day traders are more interested on improving themselves from an average $50 per day to $200 per day, to $1,000 per day trader.
Something is not right if day traders ask for annual performance returns in percentages...
For swing traders, it would be like our tax-driver in the beginning - how much we make on average on a monthly basis..
Who uses annual performance returns in percentages?
If long term investors and short term traders don't use annual returns in percentages as their main KPI, who the freaking hell use it?
1) Professional money managers. Duh? Their annual performance bonus is based on it. Have you heard of year end "window-dressing"?
2) Salespersons and promoters. I'll let you figure this one out yourself.