Picking a benchmark: A brutal process that keeps you humble
As I reflected on my performance in 2023, I was reminded that benchmarking can be a brutal process. But it keeps you humble. I don’t spend a lot of time thinking about my chosen benchmark, the S&P 500. I occasionally think as an international investor I should change it. But then again, I find the process somewhat arbitrary and if I am going to pick one, it may as well be the "best" one1. I do this to keep me humble. At least that’s what I tell myself.
It’s natural that when investors question how their portfolio is doing, they ask “How is it doing compared to…”. If I told you I was down 3% last year you might think “Better luck next time”. If I explained that I did this while the market was down 25% over the same period your perception of my performance would change. We are comparative creatures by design. We tend to evaluate our actions in relation to others. This makes us competitive, motivated, inspired, and grateful. By the same virtue, this makes us prone to envy, jealousy, anxie…