Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 455

Investment performance and start date randomness

I’ve been the primary adviser to clients for 12 years, and my career in wealth management is approaching two decades. Each client hired me on a different date over those 12 years, and since I joined RWM four years ago, this has been at a pace of about one new client every month. As a result, they all have different start dates for calculating investment performance under my watch. I call this 'inception date roulette'. There’s an element of randomness that determines what the first few months or years of the client’s experience will be in terms of performance since the inception date. I never know when the next downturn in the market will be, but I am certain that a new client will hire me right before it.

Remember in 2011, when the S&P rating agency downgraded the debt rating of the U.S. government? Congress had a standoff over the debt ceiling at the time. Stocks sank 16% over a two-week period. I had just moved from New York to New Orleans and founded a solo advisory business. Guess when my first new client signed on? July 2011. We began that relationship with double-digit declines in their portfolio.

Remember the 20% market decline leading up to Christmas Eve in 2018? The chart below shows the S&P 500 Index performance during the fourth quarter of that year.

I joined RWM in June of 2018 and spent the first few months learning about our firm’s systems, processes, and investment strategies. By the time I began talking to potential new clients, it was late summer. It takes about a month or two from the time we have an initial conversation with a prospect to the time accounts are opened and funded. My first few new relationships were established right before the market sank 20% that fall.

We all remember the COVID crash of March 2020. The market fell 35% in six weeks. That was the most intense market decline I’ve ever experienced. One client joined in early February 2020, immediately before the world shut down.

There’s a flip side to inception date roulette, the client who gets lucky with their timing. Our phones were ringing off the hook during that Covid spring. I chose to cut my maternity leave short to help with the volume. As a result, a handful of clients started in April and May of 2020. In our first year working together, the S&P 500 was up 44%.

My point here is that our investment philosophy and strategy remained the same over these time periods. We didn’t become geniuses in April 2020, and we weren’t idiots in October 2018. These are simply moments in time when the market moved in one direction or another. When it comes to your inception date with an investment advisor, chance plays a huge role.

The same goes for investment strategies going in or out of favour. As I pointed out recently, Warren Buffett, the greatest investor of all time, has had multiple, prolonged periods of underperformance. His style was out of favour, but he stuck to it. And once again, he is reaping the rewards of his discipline. Berkshire Hathaway stock is up 18% year to date while the market is down 5%. So too does any investment style go in or out of favour. Ours is no exception.

I am forever grateful to my mentors for teaching me never to sell based on past investment performance. This might work for hedge fund managers, but it’s a recipe for disaster for wealth managers. I have always thrown cold water on excitement over recent outperformance because I know the next downturn is lurking around the bend.

Advisers who sell on performance, die by performance. Their client relationships will not endure the next downturn or the next time their strategy underperforms. Any financial adviser presenting you with a beautiful chart of past performance is a red flag. An advisory relationship should be based on so much more than investment performance alone. If you’ve taken the time to find the right adviser for you, by vetting their philosophy, process, and people, you will be prepared for whatever chance throws your way in the early part of that relationship.

 

Blair duQuesnay, CFA®, CFP® is an investment advisor at Ritholtz Wealth Management, LLC. For disclosure information please visit: https://ritholtzwealth.com/blog-disclosures/. Republished, with permission, from The Belle Curve.

 

  •   27 April 2022
  • 1
  •      
  •   

RELATED ARTICLES

The perfect portfolio for the next decade

Creating a bulletproof investment portfolio

The challenges of building a portfolio from scratch

banner

Most viewed in recent weeks

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Latest Updates

Investment strategies

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

Retirement

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

The ASX is full of broken blue chips

Investing in the ASX 20 or 200 requires vigilance. Blue chips aren’t immune to failure, and the old belief that you can simply hold them forever is outdated. 

Shares

Buying Guzman y Gomez, and not just for the burritos

Adding high-quality compounders at attractive valuations is difficult in an efficient market. However, during the volatile FY25 reporting season, an opportunity arose to increase a position in Mexican fast-food chain GYG.

Investment strategies

Factor investing and how to use ETFs to your advantage

Factor-based ETFs are bridging the gap between active and passive investing, giving investors low-cost access to proven drivers of long-term returns such as quality, value, momentum and dividend yield. 

Strategy

Engineers vs lawyers: the US-China divide that will shape this century

In Breakneck, Dan Wang contrasts China’s “engineering state” with America’s “lawyerly society,” showing how these mindsets drive innovation, dysfunction, and reshape global power amid rising rivalry. 

Retirement

18 rules for ageing well

The rules to age successfully include, 'the unexamined life lasts longer', 'change no more than one-eighth of your life at a time', 'nobody is thinking about you', and 'pursue virtue but don’t sweat it'.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.