Island in a Bubble

The two main ways of measuring investment returns are called “Time-Weighted” and “Money-Weighted”. Time-Weighted could be called the play-play-meritocracy measure. It eliminates the distortion of money coming in, and going out, and looks at the performance of the investor as if they lived on an island in a bubble. This lets you compare the results of a decision-maker with a billion dollars to one with 10,000 dollars. What matters is the Money-Weighted measure. If you do well, when you have no money, and badly, when you have lots of money… it matters. When we talk of meritocracy, we normally mean the quality of skills and knowledge. That is not the full picture. You need money to make money. To survive. To invest. To have enough to reinvest rather than consume, and compound. Hand-to-mouth living leaves no space for escape or growth. You then need a container to make the money in. Barriers to entry. A door that opens for you, but not others. Even if your time-weighted return screams average. If you believe in your merit, you do not need to live on an island. And can invest in the bigger container that includes others. Beware those wracked with self-doubt who project that doubt on others through judgment.

Frosted Bubble