Rafael “Rafa” Nadal is a superstar tennis player, with lifetime earnings well over $77M plus double that in sponsorship earnings. But the guy has an unusual quirk: before each serve, he picks at his wedgie, pulls at the seam of both shirt sleeves, squeezes his nose, then taps his left temple and then taps under his right eye and then taps his right temple.  It’s an effortless and seemless sequence of actions.  Perhaps it’s compulsive behavior.  Perhaps it’s superstitious behavior.  But it doesn’t matter, because Rafa is making mountains of money and has stadiums full of roaring fans.

In some ways, we are all creatures of habit.  This can be adaptive, as it is for Rafa.  But if we can’t say we’ve got $100M in the bank before age 30, we better start assessing our outcomes in the many facets of our lives.  Rafa measures his outcomes with every set of the match and then again when his million dollar checks hit his bank account at the end of every tournament.  How do we assess our own outcomes?


In investing, we should measure our investment performance, net of all fees and taxes, against unbiased benchmarks at least annually.  Blindly sticking with current investing patterns without measuring performance is no different than constantly picking at your wedgie.

Compare your financial advisor’s performance against your benchmark, not theirs. This benchmark could be something as simple as a Vanguard Target Date Retirement Fund with a similar asset allocation.  Many financial advisors use benchmarks that count only the change in price and mysteriously exclude dividends to make it look like they are beating the benchmark when they are not. Furthermore, the benchmarks used by financial advisors exclude fees and taxes.  I see well-educated people fall for this trickery all the time.  The clients are partly to blame as they want to believe they are beating the benchmarks, just like Rafa subconsciously believes that picking at his shirt seams makes his serves as blazingly fast as they are.  Yes, you and I know that his quirks have nothing to do with his success, but that’s irrelevant because he has a foolproof benchmark and so should we.

“Allan Roth, a financial planner at Wealth Logic in Colorado Springs, Colo., estimates that at least 20 times a year he sees account statements from financial advisers comparing a client’s returns, with dividends, against those of market benchmarks without dividends.”   –WSJ

If you actively trade your own account, measure your performance against a reliable benchmark.  Many people trade stocks as if they are running a hedge fund from their iPhone, without ever actually measuring the performance of their entire portfolio against a benchmark to see if they have an edge over Wall Street traders.  Frequently trading modest amounts on instinct and hot stock tips (buy, buy, buy!) is like having a perpetual itch that needs to be scratched.  Risk-adjusted returns are sure to be dismal without strict performance measurements.

(1) Look at how much money was in your accounts on Jan 1st and Dec 31st and calculate the growth in the accounts as a percentage.

(2) Subtract your deposits so they aren’t included as investment gains.

(3) Subtract taxes owed on dividends and capital gains from your final balance.

If your performance was worse than your selected benchmark, maybe 100% of your assets should be in a Vanguard Target Date Retirement Fund.


I recently attended a live performance by Ira Glass, host of the NPR show This American Life.  During the show, he recounted a remarkable interview with a man who decided to turn his marriage into a marketing case study.  I encourage you to listen to the audio for full effect here (enable Adobe Flash and start listening at 33:20) or read the transcript here.

Will Powers (yes that’s really his name) joined a marketing firm in Seattle, and his boss wanted him to better understand the concept of brand loyalty and how to achieve it in customers.  So, Will chose his wife (!) as his “customer,” and Will was the “product.”  Then he asked his wife to complete a written survey about her satisfaction with various aspects of the “product” and ran a one-person focus group to quantify the results.  This well-meaning husband would learn the impact of mindless habits…

Ira Glass: It’s funny, because I think there are certain things about our own lives that we are hesitant to quantify. Do you know what I mean? And what you’ve done essentially in this example is that you’ve really tried to quantify– what could be more delicate than a person’s relationship in a marriage.

Will Powers: Well, like I said, I wanted to do this with my wife, because my wife is the most important person in the world to me. And I place my wife above anything else. And she is the number-one customer in my organization. And I have to make sure that she’s 100% satisfied and happy with the product.

We shouldn’t be afraid to quantify our lives to see how we’re doing and compare it to a fair benchmark.  Otherwise, we are just a bundle of quirky habits that don’t help us in our financial lives, our social lives, or in any other aspect of our lives that we dare to quantify.