I’m a sucker for benchmarks. Some of this is probably from playing sports most my life – I like competing. And when I mention benchmarks, I’m not only referring to whatever we’re comparing our investment performances to. I mean benchmarks in our careers, our businesses, our families, Twitter followers, and everything else.
As much as I love them, I’ve realized over the past few years that benchmarking isn’t always beneficial. At least standing by itself in isolation. So I like to distinguish Benchmarks from Benchmarking.
…
Probably the best example I can think of is from Carl Richards, in this podcast on “Performance Comparison Season.” He gives the following hypothetical:
Let’s say that your investment outperforms a predetermined benchmark every single quarter, for your entire life (this isn’t possible, but work with me here). You’ve outperformed your benchmark – but for whatever other reasons, you still haven’t met your goal.
Would you be happy?
On the flip side – now let’s say you NEVER beat the benchmark in a quarter, the entirety of your life. But even so – for whatever other reasons – you were able to meet your goals.
Would you be happy?
The answer to the first question is No – of course you wouldn’t be happy. The answer to the second – most likely Yes! The benchmarks didn’t really matter.
…
Let me be clear: benchmarks are important – I’m not saying we should ignore them … but our goals shouldn’t just be to beat a benchmark in different areas of our life.
Another life arena: our businesses or careers. In the past 6 months, I’ve underwent two different benchmarking studies for two very different groups of other advisory firms.
Doing this multiple years now, I’ve noticed something interesting in how I interpret the results. I end up comparing my firm to other firms slightly ahead of me in size and existence. I may be out-performing some firms in some measures, but I ignore them. I consistently am moving the goalposts, so to say.
I end up focusing on the wrong things, instead of focusing on the right ones – my goals and intentions. on the original reasons why I created the firm in the first place.
…
This sounds trite, yet it’s very true: The only benchmark that truly matters is your own.
You can outperform in your investments, outperform your competitors, outperform your neighbors, outperform everything else – and still not meet your goals in life.
Benchmarks are valuable. No doubt. They are a great thermometer for how we’re doing in our various endeavors. But the act of benchmarking should be tied to something else – our goals, and what we’re striving to accomplish. Outperformance is valuable only in that we get to those goals faster.