Money Makes the World Go Around
It's not just Broadway that extols the virtues of money. "Money makes the world go around...that clinking clanking sound can make the world go 'round" (from Cabaret).
Any discussion about investments inevitably centers on how much was made or lost or is expected to be made or lost. That's not necessarily bad with a few caveats.
- Performance standards must be uniform and therefore comparable across investors for a given asset class or fund.
- Numbers alone do not necessarily reflect a robust risk management process. To the contrary, artificial performance numbers can lull investment decision-makers into false security. Contact me if you want training on the pitfalls of investment performance reporting and risk management gaps. Click here to send an email.
- Historical numbers tell a story about what happened. Good risk management dictates the need to assess "what if" scenarios. Things change and sometimes materially so. Don't depend on historical numbers to predict the future.
- More than a few asset returns exhibit non-normal behavior. In such cases, traditional statistical tests are limited tools for capturing extreme value behavior.
The good news is that every day offers a renewed chance to do better with respect to benchmarking and risk management. Think of existing problems as gifts. Meet the challenges head on and your organization potentially reaps significant rewards such as share price gains, capital-raising on more favorable terms, fiduciary liability reduction, reducing time and stress, keeping promises to beneficiaries and much more.
