Investing for the Long-Term: How Should We Measure 'Performance'?

“What gets measured gets managed.” 

PETER DRUCKER

Long-Term Investing: Measuring Results

One of the important outcomes of the Focusing Capital on the Long-Term (FCLT) initiative was its “Long-Term Portfolio Guide” published earlier this year. A motivation for the Guide was the discovery of a serious aspiration/implementation gap in a survey on investor attitudes and practices related to long-term investing. This past April’s Letter, Investing for the Long-Term: From Saying to Doing, summarized the recommendations in the 54-page FCLT Guide. A number of these recommendations revolved around investment results benchmarking and evaluation. 

Investment results benchmarking and evaluation activities trigger an important governance question. Paraphrasing Peter Drucker: ‘if we are going to manage a long-term investment program, how should we measure its performance?’ A simplistic response would be: ‘over long-horizon evaluation periods’. It is simplistic because boards cannot wait 10-20 years to see how their organization’s long-term investment program turned out. Boards should insist on sensible progress markers along journeys lasting 10-20 years. What might such markers look like?