relative vs. absolute performance: a summary

Everyone wants absolute performance–stocks that will go up, so that at the end of the year we can look back and say that we have more money ( preferably, a lot more) now than then.

The common sense approach to more money is to pick stocks that will not only go up, but will go up more than the market.

It turns out that for basically everyone this is a lot harder than it might seem. Professionals deal with this by focusing on relative performance. Three tenets:

–stay fully invested

–concentrate on relative performance, that is, make “a is better than b” choices rather than “a (or b) is good in the absolute.” and

–stay in your lane. If you’re a growth investor, pick fast-growing companies, which is what you think you’re good at; if you’re a value investor, sift through the bargain basement for stocks whose price is (far, one hopes) less than the value of the assets they hold.

why write about this?

I’m a growth investor. Strangely enough, though, I spent the majority of my career in value shops–both GARP, where I got my first job, and deep value.

Right now, I find myself most attracted to value names. Valuation of growth names seems to me to be high–and therefore so too will likely be the penalty for earnings disappointments. And the macro environment seems at best opaque and not particularly good. Add to that Trump’s tariff agenda, his apparent intention to deport a significant chunk of the workforce and his apparent Biden-like cognitive decline and it’s not clear that we’ll be awash in positive earnings surprises next year.

I’m also beginning to reorient my IT holdings to a broader set of AI beneficiaries.

more on Monday