Wednesday, July 27, 2011

Employing medical terms to performance

I was recently introduced to a new word, which if truth be known, I wish I hadn't. But given that it's an interesting word, I can see some applicability in our world of performance measurement.

Idiopathic means "without a known cause." My favorite source for definitions defines it as

adjective Pathology .
of unknown cause, as a disease.
And so, there's a clear link to medicine. But "unknown causes" aren't limited to this field, are they? And we have a whole segment of our industry devoted to identify causes; we call it "performance attribution." 
Imagine what it would be like without these tools to properly evaluate and assess what causes the returns and excess returns our portfolios achieve. Without attribution, our results are idiopathic, since we cannot identify what caused them. Granted, one might guess, but without proper analysis the accuracy of the assessment is weak, at best.
Much of life is idiopathic, is it not? But in those areas, such as performance measurement, where we can perform the analysis, we should, as the value from these discoveries is great. 


  1. David,

    Some types of performance attribution look for the causes of investment outcomes among uncontrollable market factors (like a shift in a yield curve or a return achieved by a market sector). Other types look for the causes among the investment decisions (like selecting a fund's duration or sector allocation) under the direct control of a fund's managers themselves. Still other types conflate the two.

    “Men at some time are masters of their fates:
    The fault, dear Brutus, is not in our stars,
    but in ourselves...” (1.2.135)

    Julius Caesar
    By William Shakespeare



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