How should clients determine if we are doing a good job?

“It’s not enough to simply measure things—you have to measure what matters.” – Warren Buffett

At Dock Street we accept the challenge to produce superior returns when compared to the S&P 500 over time. “Over time” is important. We will not “beat” the index every year, but clients should expect us to reach or exceed our goal over 3 to 5 year time spans.

That requires some patience, but it also requires ignoring certain metrics that we believe distract from the important work of managing a stock portfolio. We want to be judged on the results of the entire portfolio, not how each security within the portfolio performs.

The portfolio level is where decisions compound, risks are balanced, and the cash invested ultimately does its work. Individual holdings will have different paths along the way. Some will move quickly, others slowly. A few will disappoint. That is not a flaw in the process—it is a reality of investing in businesses with imperfect and constantly changing information.

What are some of the distractions that should be avoided?

• Focusing on short-term news about companies. News about earnings, acquisitions, and most other headlines often have no lasting impact on business value.
• Focusing on price or the PE of a stock.
• Focusing on pair trades. Did what we sold do better or worse than what we bought?

These events often produce large reactions in the stock prices that often prove fleeting. 

The proper way to judge our work is straightforward: look at the long-term results of the portfolio. Three and five year returns are what matter. Investment results over those periods validate our judgments about businesses. Or not.

And never forget that our fee structure aligns our interests with clients. When client portfolios increase in value our fees also increase. And the opposite is true.

Again, judge us on total portfolio results over time–the rest is noise.

Best regards,

Daniel A. Ogden