Pennsylvania Investment Observer

Key Performance Indicators

by Daniel J. Nestlerode

The first quarter of 2006 is now in the record books. From Wall Street's perspective, it was a terrific three months to be an investor in stocks. As usually is the case, the markets started to perform better in November and have show continued good returns right through the end of March, 2006. This is consistent with an investment strategy that dictates investing in November and selling by the end of April of the following year. Historically, this strategy has done very well, compared to a strategy of buy and hold or, worse yet, one of buying at the end of April each year and selling your portfolio on the first of the following November. Historically, stocks perform better in the fourth and first calendar quarters than during the second and third calendar quarters.

Of course, conversations about portfolio performance or market performance are rather pointless if you do not measure how your investments are performing. Generally, Wall Street is rather remiss in telling their investors how their portfolios are performing. Worse yet, if you have investments in several of many locations, the job of combining your widely scattered accounts and measuring the performance becomes monumental. Setting the number crunching aside for a moment, even if you had the numbers at your fingertips, what would you do with the information if you had it? It is true that you cannot control the direction of the investment markets. So if you have a widely diversified portfolio, your performance will likely mirror the uncontrollable stock market. However, you can control the placement of your money into specific investments. The performance of individual stocks, exchange traded funds and certain mutual funds with outstanding portfolio managers generally perform better than the market averages and give you the opportunity (not any guarantee, however) to have a portfolio that has superior performance.

However, you have to first have your investments situated with a broker or advisor who will provide you with your performance data compared to the markets. The starting point in portfolio management is the collection of the performance data. The next step is to take your data, compare it to the market and start asking questions. For example, how did each of your investments perform? Did each investment help or hinder your overall performance? Is anything likely to change in the next quarter with the performance of each investment? What should I sell and what should I buy to enhance my performance in the coming calendar quarter?

I cannot answer these questions for you. This is what we do at Nestlerode & Loy, Inc. to manage our clients' accounts. It is what I suggest you do if you want to have superior portfolio performance. And as always, there is no guarantee that any system of portfolio review and action will yield good performance. But then, there is no guarantee that ignoring your portfolio will produce good performance either.

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