"Compound interest is the most powerful force in the Universe."

This statement is frequently attributed to Albert Einstein.  The evidence for when (or if) Einstein actually made the statement is slender.

However, it stands on its own as an interesting claim, regardless of its historical origin.  On average, stock markets produce a return of about 4 basis points (i.e. four hundredths of a percent) every business day.  It seems like a paltry return.  Indeed, it is quite paltry.  However, due to the effect of compounding, this paltry little return can accumulate over years and decades to create extraordinary amounts of wealth.  This is one interesting thing about compounding.

Another interesting thing about compounding is the way it affects all calculations about changes in investment portfolio value over time.  We will touch lightly upon this theme in various places on this web site.

This web site is all about investment performance measurement and attribution.  Our aim is to provide unique and valuable insights on this topic.  Some other sources chronicle the techniques that people have used in past decades.  However, we focus on the ideas that we believe will prove useful over the next few decades.

Navigating this Web Site

The four main subject areas fall under the buttons on the left of this page.  These subject areas are:

1. Investment Performance Measurement: Measuring the returns of a portfolio, and comparing them with a suitable benchmark;
2. Investment Performance Attribution: Explaining the sources of differences in returns between the portfolio and its benchmark;
3. Operational issues: Practical knowledge that is useful for investment performance analysts;
4. Risk measurement and management.

Investment Performance Measurement

Investment Performance Measurement gauges the returns of investment portfolios.  This is not always as easy as it seems to be. See the Measurement Errors page for some information about what makes portfolio performance measurement difficult.

Investment Performance Attribution

Investment Performance Attribution explores the important question of why an investment portfolio has performed better or worse than its benchmark.

Attribution is an interesting and complicated problem.  This web site has a particularly strong focus on performance attribution.  Hence, most of this information on this web site is accessible via the Attribution Page.

In A Nutshell

The following simple example, using a notional fund XYZ over a single month, encapsulates all the different aspects of investment performance measurement and attribution.

• Step One: Calculate the portfolio return for Fund XYZ over the month.  It was 1.3%.
• Step Two: Calculate the benchmark return for Fund XYZ over the month.  It was 2.3%.  We conclude that Fund XYZ under-performed its benchmark by a full percentage point over the month.
• Step Three: Explain why the portfolio under-performed the benchmark.  This explanation might include the stocks that the portfolio contained, the sectors in which it was concentrated, the timing of investment decisions, or other salient factors.

Steps One and Two comprise the performance measurement task.  Step Three is purely a question of performance attribution.

This web site contains a lot of information about all three steps.

Purpose of this Web Site

This web site provides some very detailed information about some of the most commercially important questions in the field of performance measurement and attribution.  As a bonus, this information is also very intellectually stimulating! (well .. at least to some).  Please enjoy exploring it.  I hope it inspires you to think that there are practical ways to improve the way your firm does performance measurement and attribution.

Who is the audience for this web site?  Investment performance analysts, portfolio managers, quants, and other professional/managerial people who want to extend their thinking on investment performance analysis. 

There must be a million sites on the web for retail investors and day traders.  However, this is not one of them.

Most of the material on this web site was developed by Damien Laker CIPM, the founder and principal of CompoundingHappens.com.  Some material has been contributed by other people, and is used with acknowledgement.

Forthcoming Master Classes

Damien Laker CIPM has developed a curriculum for a two-day master class on "Essential Concepts and Skills for Arithmetic Performance Attribution".  This is similar to the one-day master classes that Damien has presented in recent years, with extra instructional material, and more practical exercises for delegates to attend during the class.

Are you interested in attending a master class in your area?  We are contemplating master classes in the following cities:

• London

• Hong Kong

• New York

• San Francisco

• Sydney

For more details on the forthcoming master classes, please look here.

If you are interested in attending a master class, please send us an email, with details of the city where you would prefer to attend.

Quarterly Newsletter

We are very well aware of the deluge of unsolicited mail that everybody has to deal with these days.  However, we have received feedback from some people that they would like to receive occasional updates including a summary of what is new on CompoundingHappens.com™. 

We have decided that a brief quarterly newsletter would help to keep people in touch with new developments, without contributing to the "inbox clutter" that afflicts most of us.  The newsletter would contain links to new material that has appeared on the site, and information about forthcoming master classes and other events where you can hear from CompoundingHappens.com.  Unlike some other newsletters, we would not burden you with rehashed financial news, product announcements from companies, job advertisements, or other ephemera.

If you want to simply receive a quick quarterly update of what CompoundingHappens.com has to offer you, this is your newsletter.  Send us an email to subscribe.

We will treat your email address and any other information you send us in accordance with our Privacy Statement.

What's New on this Site

Contact Information

Please note: We are very happy to receive feedback about the website, invitations to speak at conferences, and sincere enquiries about engaging us for commercial services (e.g. consulting, speaking engagements).

However, if you are contemplating sending us a message about Viagra, Nigerian money scams, or a request for free advice, please desist.

Electronic mail

General Information: info@compoundinghappens.com

Telephone

+61 2 9552-1243

Postal address

Suite 6, 174 Bridge Road, Glebe NSW 2037 Australia.