New Essay - Evaluating Performance

[racemize]

Should returns be shown gross of fees or net?

As an investor we care about net, but in terms of evaluating the manager, his skill is best represented in gross returns.

For example a mutual fund manager with a 12% net AAR is not actually better than a hedge fund manager with 11% AAR that has standard 2 and 20.

Or someone with the Buffett partnership averaging 9% is really only 10% gross while someone with 2 and 20 reporting 9% net AAR is really at about 13% AAR gross.

 

Depends on what we are evaluating. I think most of the time, we are evaluating the investor’s experience (or are a prospective investor), which is why I presented it net. If it were just to evaluate the skill of the manager, then certainly gross. 

[John Hjorth]

... And obviously I'm now fascinated to know more about Austin's strategy. ...

 

... Well Austin's strategy is just what I'm doing plus my partner, who posts on here occasionally.  ...

 

I'm not trying to be rude, nor condecending, or anything else here [i have no reason or basis to be so], but this - at least to me - sticks a lot deeper. For your part, [naturally, I'm not referring to Joel [racemize] or Jeff [rainforesthiker] here] please take your time to make up your own mind. Alone doing that, will be quite time consuming, here on CoBF, by reading the board.

It has absolutely nothing to do with a "strategy" - in its ordinary business understanding - [in the meaning: "We are at "A", and we want to get to "B", in a certain sense].

 

In short, it's an investment framework, that you can relate to [no matter what's on your watch list, or in your portfolio], or you can't.

 

Austin Value Capital - Philosophy.

 

CoBF book topic : here.

 

John has done a much better job responding than my lazy answer below—more evidence that we should have him on our non-existent payroll.  The book, essays, philosophy, and letters lay out the framework fairly well for anyone interested. My answer related more to how the returns have been generated than what framework or strategy we are using. So, the framework is fixed but the strategy is opportunistic.

 

Thank you a lot for taking my post by its sincere intentions, Joel,

 

It was meant exactly the way you read it, ref. your response here. [it takes a really "dumb-smart" person to tell other people, what to get out of two persons shared work - especially the persons, who shared their work and thoughts.] Thank you.

 

Jeff's book is actually an intellectual framework to avoid being your own worst enemy [on psycological level], by staying factual, rational and emotionally detached, by staying occationally opportunistic and contrarian to herd/crowd behavior in the market, based on facts.

 

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Personally, I'm certainly still on the school bench with this, but it's getting better over time [read: less stress, combined with better return].

 

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With regard to benchmark, I think it's evident, that the yardstick should be a measure of the general market [please make your pick], because that is what one here has the intention to take advantage of.

 

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Edit: Added the word "occationally" above.

[thowed]

Thanks for your answers.  Amongst other things, I research funds and so am always curious to find out more about interesting people.

 

John - your reply is interesting and gave me some food for thought i.e. separating frameworks, strategies etc.  (I think we all may use different words for these things).

 

Basically, I have read so many letters / reports etc. explaining how a manager believes in value, focus, the long-term etc.  This gives an initial flavour of what to expect.

 

But it's not until you see what a portfolio consists of, when things were bought/sold, rationalisations for why it was done, that you can start to make an evaluation.

 

Perhaps to encapsulate, I believe that value investing can mean different things to different people, and so you have to look at what they do, as well as what they say.

 

I remember the thread on the book, but hadn't connected it to Austin.

 

Joel - I have very much appreciated your writing and ideas, particularly the pieces on Price and Returns, and holding Cash.  Thank you.

 

Cheers!