The Danger of Obsessing Over Short-Term Portfolio Performance

The key is to focus on long-term performance, which can differ sharply from short-term reports.

The report illustrates the point with a quilt-like chart showing the performance of eight different value strategies over individual five-year periods, highlighting the performance of sales-to-price, one of the eight.

That strategy aced all others in the 1968-1972 period,  then slid to the second lowest performing strategy over the subsequent five years and subsequently then bounced on the performance scale during the remaining eight five-year periods. The dividends-plus-buybacks strategy is another illustration of an ever-changing performance stats from one five-year period to the next.

(Related: Growth and Value Stock Indexing Are Both Broken: Nicholas Colas)

Longer term, however, the eight different value strategies returned between 11.4% and 12.8% annually – “a modestly narrow band,” says Treussard, – using three-year rolling periods from January 1967 through December 2017.

“As we de-emphasize the importance of short-term performance, we also gain an appreciation for the fact that long-term performance expectations have less noise built into them,” writes Treussard.