What You Cannot Measure You Cannot Manage

What you cannot measure you cannot manage. This statement is so well known that it needs no further explanation. And is self-evident. If you cannot measure your performance – say as a sportsman – how will you manage to get the outcomes you want?

Look at the statement from the perspective of an investor. If you cannot measure performance, how can you achieve the results you want? But if performance is what you want out of your investment, then is measuring performance sufficient? Can the very same thing you want to achieve be the object of measurement?

Consider this from the sporting field. If an athlete wants to run 100 meters in 10 seconds or less, should his training be limited to running 100 meters all the time? Should the only object of measurement be the time he runs 100 meters, day in and day out? If that was the practice regime of his coach, I guarantee that either the athlete would suffer a career ending injury or give up in sheer boredom. But the expert coach would have that athlete run sprints, very short ones for speed and longer ones to build endurance, measure his weight at regular intervals to ensure that the weight to strength ratio is maintained, would look to improve lung capacity and measure that too. The more measures the coach devises the richer the training regime and the better the chances of our mythical athlete running a sub 10 second race.

So, it is in the Investment field. To get good performance from a portfolio, a number of variables that impact performance have to be measured and those aspects managed. Keeping an eye on just the performance metric of the portfolio is not sufficient, in fact rather harmful.

The logical question then arises. Can an investor devise and construct alternative measures of portfolio health so that the long-term results of the portfolio are optimal? Let’s unpack this question.

First, what tools does an investor have to manage his portfolio? Only the Excel spreadsheet. And what can an Excel spreadsheet do? Except for the very expert spreadsheet users, only calculate the return metrics i.e., run the XIRR formula. And maybe do some sorting based on a rudimentary industry classification and the return metrics.

Next, what are those alternative measures of portfolio health that can be devised? I would wager than 99% of the investors would not know of alternative measures – whether they be suitability metrics, or stress tests. And if they do know of such alternative measures, would the Excel Spreadsheet be the instrument of choice to devise such calculators?

Finally, why was the term long term introduced? In the short term, the measurement problem might be ignored. Not that we advise it, but a daily engagement with the market and the portfolio can reduce catastrophe risk. But this type of daily engagement is not for anyone and for all time. Retirement planning and investing to create wealth are long term activities. Investing is not a “super over” swing and miss. Even amongst the professional cricket players, only the very best can look to hit the sixers with some regularity and some degree of confidence. For the others, playing to a plan and pacing the innings is necessary to achieve good results. So, it is too in investing. Playing for the long innings is the recommended way for stress free success.

Issues of this nature are the very reason why we have developed the Qfinr platform. The Qfinr platform is the tool which helps the individual investor to construct a holistic view of his portfolio, to run the various measures of portfolio analytics using the best data sources and the best-in-class mathematics so that the investor is a long-term winner. It looks through Funds and the ETFs, read its component investments and provide an aggregate view of individual asset holdings. It provides industry, country and currency exposures, and calculates various statistics that reflect the volatility and riskiness of a portfolio. If the investor wants to know if his portfolio will provide a higher return compared to an appropriate index representing the broader market, Qfinr can provide the answer. Qfinr calculates whether portfolio(s) are suitable in terms of risk and return, figures out appropriate Risk Return trade off an individual investor and provides scenario based Stressed Tests. Finally, Qfinr’s analysis provides deep analysis on Funds, ETFs and Stocks and publishes a greater level of detail than the most well-known data providers in India or the US.

It is as if the investor has outsourced the heavy lifting in terms of data, and analytics to Qfinr while he uses the time thus saved to in his main line of business.

Next, we will consider how Qfinr constructs investor portfolios that are designed to work in in the medium to long term.