Investment process is more important than performance

Within a great post on how much you can learn while hitting rock bottom, Leo Kolivakis shares this gem (bold added):

During a recent lunch with my former boss at PSP, Pierre Malo, we talked about what we value most in life. In our previous lunch, Pierre and I discussed process over performance. In a nutshell, we believe that too much attention is being paid to performance and not enough to process. The way investment managers achieve their performance is a lot more important than overall performance and yet very few institutional investors pay close attention to process until it’s too late.

Pierre also talked about luck in investment management. I used to go into his office every morning and ask him “where is the US dollar going today? What about the euro or CAD?”. He would take out a coin from his pocket and say “you tell me”. He doesn’t believe in short-term market predictions. He told me over lunch, “Anyone can be lucky, even over a long period, but that doesn’t make them a good money manager.”

Strong money managers are constantly working on their process, questioning it, listening to others for insight, and tweaking it as they go. One of the most important aspects of this is to be big enough to articulate your process (for your own sake, first of all), and that’s one of the main reasons why investment blogging has become such an important part of many of the smartest investors’ process.

And from the perspective of the individual investor who’s looking for a money manager, hearing about their process – in as real and human a voice as possible –  is often the best way to know if the manager is a good fit to run their money. Performance comes and goes for any manager, but a compelling, honestly conveyed process that meets the client’s goals can form the basis of far more significant tie.


“The Value of Losing Money” Leo Kolivakis, 5/8/11