Thursday, February 27, 2014

Returns across weekends

A Linkedin colleague sent me a note about the idea of calculating returns across weekends. There really is no need to do this, except when the month-end date occurs on the weekend and you're accruing for income. The following paints four cases:

In Case #1, we calculate the return for each day, including the weekends, for the period Friday through Monday. In Case #2, we ignore the weekends, with the proviso that Monday's beginning value is Friday's ending value (just as Saturday's is in Case #1): we get the same return.

In Case #3 we take accruals into consideration and calculate returns for each of the four days. In Case #4 we ignore the weekends, with the understanding that (a) Monday's starting value is Friday's ending, and (b) that Monday's ending value includes the accruals that occurred over the weekend. We see we get the same returns.

If Saturday or Sunday is the start or end of the month, then we want to make sure we capture any accruals that would occur on Saturday and/or Sunday.

Ironically, I think systems that calculate monthly returns probably handle the month-end better than daily, since they inherently will ensure they capture all the accruals; for daily, unless you calculate every day, you need to do some extra work to make sure they're there. Your thoughts? Am I missing something?

Tuesday, February 25, 2014

What does flying have to do with investment risk?

Chuck Yeagar is perhaps best known as the first pilot to officially go beyond the speed of sound. You may recall that he was portrayed by Sam Shepard in the movie, The Right Stuff. In his autobiography he wrote "all pilots take chances from time to time, but knowing -- not guessing -- what you can risk is often the critical difference between getting away with it or drilling a fifty-foot hole in mother earth."

The key point is knowing the risk that is being taken.

Leslie Rahl wrote“Risk is not bad.What is bad is risk that is mispriced, misunderstoodor unintended." Again, the key is to understand the risk that's being taken.

It's required that those who offer investment services properly acquaint their clients with the risks they will be subject to, so that there won't be any surprises or disappointments, should things not work out as planned.

Risk measurement is the most complicated aspect of performance measurement; enough hasn't been said about it, nor do we fully understand it, though we keep trying. 

Monday, February 24, 2014

Announcing the first ever, "black tie optional" performance measurement conference

This year's Performance Measurement, Attribution & Risk (PMAR) conferences will be "black tie optional." A bit unusual, right? And so, why would we do this?

Well, the theme of the events is "the secret agents of performance measurement," and when we think "secret agent," Bond, James Bond, comes to mind. And when we think of Bond, we think of classy elegance and the iconic tuxedo.

My personal favorite Bond is Pierce Brosnan (who like most of the other 007s, was not English (he's Irish ... my, how did THAT slip by?)). 

We have no way of knowing, of course, how many of our attendees or speakers will adopt the dress of a classy British secret agent, but those who do will, no doubt, enhance the classiness of an already classy program. And of course, the "black tie optional" theme carries over to women, too, who may choose to adorn themselves in an appropriate garment befitting a "Bond girl" or a female secret agent attending a formal function.

But the "optional" will remain in force, meaning attendees may elect to go "business casual" or wear a business suit. 

While I would very much like to be wearing a tux by Brioni, which appears to have been Brosnan's preferred source of clothing, I'll make due with what I have.

The events, like all previous PMARs, will be educational, engaging, and edifying (three e's), plus lots of fun. 

For more information, please visit our official PMAR website. PMAR is unique in very many ways, and this year's will merely introduce yet another, and expectedly fun, form of uniqueness.

Thursday, February 20, 2014


I have been a fan of "synchronicity" for some time; it's essentially the belief that there are no such thing as coincidences; instead, things happen for a reason

Yesterday, I posted about Napoleon Hill. And earlier today I discovered this on Facebook:

It was posted by the Napoleon Hill Facebook page (which I'm a "fan" of). 

My friend and colleague, Debi Rossi, sent me an email last week with the following: "You have always inspired me to pursue further knowledge, as I am sure you have done so for many, many others." I was both honored and flattered to receive such a note.

That being said, it is my sincere hope that my recent accomplishment of obtaining a doctorate will inspire others to pursue similar goals. There are many folks much younger than I who think they may be too old to go back to school. Well, I don't believe so.

Wednesday, February 19, 2014

A word on education, from Napoleon Hill

Napoleon Hill wrote the classic, Think & Grow Rich. I am reading it for the umpteenth time, and came across the following which I think is important to consider:

Successful men*, in all callings, never stop acquiring specialized knowledge related to their major business, 
purpose, or profession.

I have attempted to live by this philosophy, and encourage you to do the same. There are many ways to accomplish this:
  1. Reading books: While there was a time when there were very few performance and risk books available, this is no longer the case. We have published several, as have others. You should strive to have a library you can rely upon.
  2. Reading articles: The Journal of Performance Measurement(R) the leading provider of articles on performance and risk, though other publications offer them, too. To keep up with the latest thinking, you should make an effort to review these publications.
  3. Training: The Spaulding Group offers training on performance measurement and risk, as do others. This is an excellent way to gain additional knowledge.
  4. Conferences: Our Performance Measurement, Attribution & Risk (PMAR) conferences are the leading performance conferences in the industry. We hope you choose to join us in Philadelphia (May) and/or London (June) to expand your knowledge and have a great time doing it.
  5. CIPM Program:  I'm not sure the program was intended to be a training vehicle, but it is. Many have found it to be a great way to acquire additional knowledge (as well as achieve the certification). As you may know, we offer both training and prep materials for the program.
A very long time ago I stumbled upon the term "life long learner," and decided this was a worthy pursuit. I think we all can benefit from striving to broaden our knowledge, especially in our chosen field of employment.

* Please excuse Napoleon's choice of words; this was written roughly 80 years ago. Today he would no doubt word it "men and women."

Friday, February 14, 2014

Mission Accomplished!

My postings slowed down this week, because I was preparing for my doctoral dissertation defense, which occurred yesterday (despite the horrid weather we were having). I am pleased to announce that I was successful.

I have wanted to achieve this goal for nearly 30 years (since I was about 11; I've always been ambitious). The challenge was finding an institution that offered a part-time program. I learned that most PhD programs are only available to full-time students, and taking a few years off to pursue a doctorate is beyond most of our abilities, surely mine. After a discussion with someone at Drexel University, I learned that Case Western Reserve (Cleveland, OH) had a part-time program, so I began to pursue it. However, along the way I learned of the program at Pace University in NYC. Given its proximity to my home and office (roughly an hour away), the decision was an easy one. I should add that logistics wasn't the only reason I chose Pace; unlike Case Western, Pace afforded me the opportunity to have declared concentrations of finance and international economics.

Pace offers a Doctorate in Professional Studies (DPS). It is intended for business professionals who wish to obtain a "terminal degree" on a part-time basis. It was ideal for me, as it afforded the challenge, the instruction, and the opportunity I was seeking.

Its claim of being "rigorous" is one I can attest to. Roughly half the students who began the program with me dropped out, and of those who made it through the "ABD" (all but dissertation) phase, there remain a few who are still in pursuit of the ultimate goal (with, I suspect, at least one who has given up). 

My dissertation's title is The Predictability of Holdings-Based Residuals As a Result of Trading Volatility. I will shortly begin working on the first of at least two articles based on my research.

Someone posted this on Linkedin yesterday (being a fan of synchronicity, I found the timing interesting):

While we might prefer less graphic language, the point is a clear one. Many of us set goals in life, but some of these goals remain unfulfilled. I have learned that we can come up with many, many reasons (excuses?) why we can't do something; what we need is a strong enough why we must reason to achieve our goals. 

Today, there are other part-time doctoral programs. One of my business colleagues and friends is pursuing one through the International University. And I believe Oklahoma State has one, too. 

I can recommend Pace University's, since I just spent the past several years involved in it. It requires one full day each month on campus per semester for the first three years. Students are required to pick two areas to concentrate in (mine were Finance and International Economics), and must take three electives each, that are also held on campus (though students can pursue these at other institutions, provided they meet the school's requirements; for example, I completed one at Rutgers University). In addition to writing a dissertation (which must be scholarly, represent original research, and contribute to the profession), students must also pass both written and oral comprehensive exams ("comps") in both areas of concentration.

One of my great discoveries along the way was the advancements that have taken place with university libraries. Today, access to journal articles is "a breeze," as one can fairly easily track down material on line. In addition, the school has access to many databases (e.g., CRSP: Center for Research in Security Pricing), which can prove quite useful.

I am obviously quite proud and pleased at this moment, but I am also hopeful that others will be encouraged to pursue their goals. I am thankful for the support I received from my family and friends, and the faculty members who were willing to serve on my dissertation committee.

Note: a "terminal degree" is the highest academic degree in a given field of study.

Friday, February 7, 2014

Looking for a date? How about three?

We were recently contacted regarding the appropriate date to use for a fund's inception. This caused me to reflect a bit, and I thought I'd touch on this briefly. There are essentially three dates you may want to concern yourself with:
  • Inception Date: this is the date the account incepted (Wow, did I actually write that?). It is derived from the Latin inceptus, the past participle of incipere: to begin, undertake. And so, it's the beginning or start of the account. It is typically the date that the funds are first available to be managed.
  • Performance Start Date: this is the date that the manager begins to be tracked for performance. It may be sensitive to two things. First, the point at which enough funds are in the account so that the manager can execute his/her strategy. Funds sometimes come into a new account over several days, and so it may take some time to reach the minimum threshold or for the account to be "fully funded." It would arguably be unfair to start a track record if the account is not yet able to be invested as intended. The second factor could be the point at which the account is "fully invested." Depending on the liquidity of the market, this may take a single day or several months. It's not unusual to have a discussion with the client to agree upon what this date will be.
  • Composite Entrance Date: if the firm claims compliance with GIPS(R) (Global Investment Performance Standards), they must have a policy that specifies when accounts are added to composites. Some immediately add a new account, while others delay. Liquidity is typically a factor in determining how long the lag time will be.
It's important that the firm have policies in place to assist in determining what these dates will be for each account.

Tuesday, February 4, 2014

"They were simply outplayed"

It's probably not surprising that Sunday's Superbowl is still a topic of discussion.

I'm conducting a GIPS(R) (Global Investment Performance Standards) verification this week, and this morning, when I went into the hotel's concierge lounge, I overheard two women who were watching a discussion about the game on the television. The Seahawks' Richard Sherman was explaining some of the reasons his team prevailed; apparently the women were unimpressed. One remarked, regarding the Broncos, that "they were simply outplayed."

While no one can argue with such an observation, it lacks the specificity that many like to see. I recall how the Philadelphia Eagles' defensive coordinator, Jim Johnson, was credited with the team's success against the then Atlanta Falcon's (now Eagles') Michael Vick in the NFC Championship game in advance of Superbowl XXXIX. "Monday (and even "Tuesday") morning quarterbacks" aren't typically satisfied with "they were simply outplayed." 

What insights can be shared that perhaps we weren't aware of? Did the team have a secret strategy to keep Peyton Manning in check (looked that way)?

Imagine if a portfolio manager were to explain why they failed to beat the benchmark with such brevity ("we were simply outperformed"). Chances are it wouldn't suffice. We want a more detailed assessment.

Attribution analysis, be it of an important (or even not so important) game is often expected, as well as with investing.