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Practical Portfolio Performance Measurement and Attribution, Second Edition by Carl R. Bacon

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1
Introduction
The more precisely the position is determined, the less precisely the momentum is known in this instant, and vice versa.
Heisenberg (1901-1976) The Uncertainty Principle (1927)
 
Learn as much by writing as by reading.
Lord Acton (1834-1902)

WHY MEASURE PORTFOLIO PERFORMANCE?

Whether we manage our own investment assets or choose to hire others to manage the assets on our behalf we are keen to know “how well” our collection or portfolio of assets is performing.
The process of adding value via benchmarking, asset allocation, security analysis, portfolio construction, and executing transactions is collectively described as the investment decision process. The measurement of portfolio performance should be part of the investment decision process, not external to it.
Clearly, there are many stakeholders in the investment decision process; this book focuses on the investors or owners of capital and the firms managing their assets (asset managers or individual portfolio managers). Other stakeholders in the investment decision process include independent consultants tasked with providing advice to clients, custodians, independent performance measurers and audit firms.
Portfolio performance measurement answers the three basic questions central to the relationship between asset managers and the owners of capital:
1. What is the return on their assets?
2. Why has the portfolio performed that way?
3. How can we improve performance?
Portfolio performance measurement is the ...

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