REALISTIC PERFORMANCE EXPECTATIONS

 “The market can stay irrational longer than you can stay solvent.”
                        —John Maynard Keynes

This section is intended to provide clients with a realistic framework with which to anticipate results as well as to assess our performance. Historically, the stock market has produced an average total return of 9-10 percent per year, while bonds have historically produced 5-6 percent per year. Quite simply, our goal will be to produce returns that are better than that.

Without a doubt we will have periods where our performance will lag the major stock market averages. However, by focusing our portfolios on the best businesses and by being careful about how much we’re paying for these businesses we should be able to—and would consider it a failure if we were unable to—beat the market by at least 3 percentage points a year over a reasonable time frame (4-5 years).

However, the market’s recognition of value isn’t especially orderly so we ask our clients to remember that periods of time ranging from a quarter to over a year are not necessarily meaningful in assessing results (see quote above). As a result, patience and confidence in our investment process will be required from time to time in order to realize the above-market rates are process will bestow upon enduring adherents.  View the table below, which tallies up the incredible marginal wealth a few additional percentage points a year makes on portfolio values when compounded over a significant amount of time (20-30 years).

The table below shows the magic of compounding interest on a $100,000 initial investment, at varying rates:

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