Notes
1 In other words, the measuring period might be selected to show off the manager's performance in the best possible light. See the discussion in Chapter 17.
2 Some investment accounts cannot be custodied in the normal meaning of the word. Private equity partnerships, hedge funds, real estate, and so on are examples of accounts that are not held in bank custody. The values of these accounts are typically shown by custodians as line item entries. In addition, mutual funds employ their own custodians, so that investors who want to see mutual fund accounts consolidated with their custodied accounts will have to ask their custodians to show them as line item entries as well.
3 There is also a growing list of firms that provide performance-only services.
4 Earlier in my career, when I was working in a large family office, we received extremely detailed, quantitative performance reports from our advisor every quarter. These reports were so extensive that they formed a pile 11 inches high on the corner of my desk. Somewhere in that pile was something I needed to worry about, but the likelihood that I would find it was extremely remote.
5 That is, if valuations are low or reasonable by historical standards. Convincing ourselves that, although P/E ratios of 40 are high by historical standards, they are reasonable because we are in a “new paradigm,” is a recipe for investment disaster.