1] ok will attempt an educational thread about @commonking portfolios he posted last night so while most wont have the software to do this, thinking about portfolios this way will probably be helpful one way to measure portfolio performance is by breaking down investment decisions into two frames - which sectors are likely to do better or worse, and then which securities in those sectors are likely to do better or worse. a stylized example example might be, for the year, you decide to only go long the tech industry. Compared to the index, which is ~25% tech, you are overweight, in an outperforming sector. This is called "allocation" - what amount of your performance came from picking the right sectors? So you'd "get performance points" from this exposure Next, what companies? Suppose it was 100% long IBM. IBM underperfomed tech - so you would lose performance points on this stock pick This is called "selection" The interaction of allocation + selection = total effect
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@BadaBingCapital here is another way to visualize what Bada is describing... the size of the bubble represents the weight in the portfolio, the x-axis is total return at the sector level, y axis contribution to total return. You can see how the tiny "Financials" position (its actually XLE, the energy ETF) dropped 40% but wasn't too much of an overall drag on the portfolio, while the also small healthcare allocation was a strong contributor.