The Case for Withholding Performance Reports (Part 2)

Today I continue discussion of an argument in favor of opacity surrounding performance reporting.

I recently spoke with a trader “E” who cited a performance claim he believed to be credible from an investor he had been speaking with over a long period of time. In E’s mind, the long time interval was sufficient to establish the investor’s credibility. E remembered an earlier date when the investor made a buy call for an [allegedly] substantial position. The stock went on to do extremely well.

I think E is probably right about this specific example but in my experience, the example is unusual. I meet people in forums, Meetups, or investor shows, and they boast about performance or big wins. These aren’t people I have known for a long time nor are they people who have given me specific market calls (which I would never ask for, anyway). Stories aplenty exist about social media profiles of “investors” who make various buy/sell calls over time. Most of these do poorly. Every now and then—if only by chance alone—one does well and that profile gets all the press.

I will point out one important caveat with regard to E’s example: without brokerage statements and/or tax returns, E really has no idea how “substantial” the position is. Position size is important with regard to performance because the smaller the position, the more willing one may be to gamble on a trade. From a marketing perspective, I should tell many strangers about new positions: if wrong then I look human and if right then I look like a hero. E may be experiencing the latter.

I will conclude by addressing a potential contradiction mentioned in the footnote to my previous post. I said I would feel more comfortable reporting performance to people with whom I have an “advance degree of trust.” At the same time, I go ahead and report performance here. This blog is primarily to keep me on track with projects. I do not advertise this blog. I do not market this blog. I occasionally view the analytics and I know very few people read this blog. It’s therefore not the case that I share performance with large numbers of strangers (and certainly not in a timely manner).

It would appear that my previous dilemma over whether to organize a free and transparent Meetup has run into another dilemma over performance reporting. Sir Walter Scott’s quote is quite fitting here: “oh what a tangled web we weave when we first practice to deceive.”