This article is excerpted from a letter by Christopher Tsai, president and chief investment officer of Tsai Capital Corporation.

“In the short run, the market is a voting machine but in the long run it is a weighing machine.” –Benjamin Graham

I provide this quotation to illustrate that short-term performance data provides little assistance in evaluating investment performance over the long-term. It is in the nature of the stock market for there to be constant price action, which is often amplified by human emotions, thus resulting in the inevitable short-term outperformance, or underperformance, by any a money manager. Over the long run, however, this price action phenomenon balances out, leaving the stock-picking ability – or business-picking ability, rather – as the sole driver of investment returns. Incidentally, very few money managers outperform the S&P 500 Index over the long run. It is on this basis, and this basis alone, that I recommend to use the S&P 500 Index as our long-term benchmark.

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