Tom Watson & performance measurement

I can't allow the almost history making weekend in Turnberry, Scotland go by without trying to tie it to investment performance. Well, how's this?

Tom Watson once accused fellow golfer Gary Player of cheating. This was during the first "skin's" game, when Tom said that Gary had plucked out a weed that was sitting near his (Gary's) ball. Such an act violates one of golf's rules. Gary insisted that he hadn't cheated and offered to pay $1 million to anyone who could provide video showing that he had. This wasn't the first time I had heard of players being accused of cheating. For example, Ken Venturi accused Arnold Palmer of cheating during the '58 Masters.

And so, what does this have to do with investment performance? Plenty!

You may recall that in the movie The Legend of Bagger Vance, the young boy, Hardy, explains why he loves the game of golf. One of his reasons is that it's the only sport in which the player calls a penalty on themselves.

Well, aren't investment managers obligated to "call a penalty" on themselves, too? Firms should have "error and correction" policies, which dictate when they are to correct and report errors they discover. And, if the firm claims compliance with the GIPS(R) standards, we would expect that they would take steps to ensure that they follow the rules. And, if they discover an infraction, that they would correct it. Even if a firm undergoes a verification, we expect the firm, in the end, to be the one that mindfully tracks their status vis-a-vis these standards.

Weekend golfers are habitual breakers of rules, either consciously or out of ignorance. But professionals are obligated to adhere to these rules. And even if no one else notices their error, they are to announce it and take the appropriate penalty, even if it means that they lose or, in some cases, are removed from the tournament. That's a lot of pressure, especially when there's a lot of money at stake. But without such expectations we'd have to have an army of "verifiers" following players around, watching every step they take, every action they make (and also, every action of their caddie, as Gary Player was accused another time of cheating when (supposedly) his caddie dropped a ball after they couldn't find the one that Gary had hit). Investment firms should have similar ethics and obligations, yes? No one likes to be called a "cheater," so we must be mindful of the rules and ensure we follow them.