Investment returns are measured in percentages, but dollars make an impact
On a recent earnings call, one of our companies’ CEOs said “we bank dollars, not percentages.” Often, financial numbers like margin and rates of growth are shown as percentages, but he was reminding analysts that dollars are what really matters.
Percentages are useful because they allow us to compare things, like companies or investments, which are different in scale. $1 million in new revenue might be a huge gain for a startup, but is a drop in the bucket for a large company that already has $10 billion in revenue. At the end of the day, as investors, we are rewarded in dollars for our patience. We can’t bank percentages.
This also applies to our clients and their portfolios. Small differences in return percentages can have a large impact on the dollar value of a portfolio. And after-tax dollars are the end result that really matters. We can’t eat percentages.
As an example, the chart below shows results for an investor who started with $500,000 at the beginning of 2008 and stayed invested until the end of last month. Over this period, the S&P returned an annual average of 9.7%. The Dock Street Equity Portfolio returned an average of 13.1% (before fees). A difference of just over 3%. That doesn’t sound like much.
Yet over this 15 year period, the end result is a $1.2 million higher dollar value for the higher return portfolio. Focusing on dollars is important because it’s what matters for our clients in the end, and small changes in returns can lead to large differences in outcome. And it’s the dollars that matter.
In the above letter we discuss the performance of one asset class in a Dock Street portfolio. When we do, the SEC requires us to include a detailed summary (below) which includes the total portfolio net of fees over standard time periods.
Dock Street Equity – Equity positions are the primary equity holdings of Dock Street clients and are oriented towards long term growth. Performance is shown inclusive of dividends.
Dock Street Fixed Income – Fixed Income positions are in Treasuries, Municipal Bonds, or ETFs and Mutual Funds invested in various fixed income assets.
Dock Street Balanced Portfolio – A portfolio representative of the average Dock Street client which has ranged from 70-80% in equity allocation over this period. Performance is shown net of fees, all other rows are gross of fees.
Bloomberg US Treasury 3-7 – An index which tracks the performance of intermediate duration US Treasury Notes ranging from 3-7 years to maturity.
S&P 500 – The performance of the S&P 500 index inclusive of dividends. Fees are not included so this performance is not available to the typical investor.