CHAPTER 20Benchmarks and Knowledge

Investors want to know how well their investments performed. However, performance is relative and cumulative. The base level is zero—did wealth grow or shrink? At the next level, the performance of the portfolio is compared with various alternatives that the investor could have pursued but did not. One of the first comparisons is how well the investments performed compared to what other investors obtained from their investments. Universes of other funds have a long established history in the investment industry and are used for precisely this purpose. The next level is to compare investment performance with naïve passive investments. A range of investment products can be used for this purpose starting with the ...

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