When everything's going up, noone cares about performance. Guess what happens when everything'snot going up?

It's probably not happening yet. But, very soon, itwill. When all the markets are rising, no one talks aboutinvestment performance. That's probably a verymature thing to do.

If folks are talking about performance when everything's going up, that'slikely a sign they are chasing performance, not their goals. That'sa formula for disaster.

Of course, if it weren't for those people, we wouldn't havelate-stage bull markets and there would have been no reason foranyone to have come up with the idea of “The Greater FoolTheory.”

When markets get choppy, people return to the study ofperformance analytics. That doesn't mean they're more mature. Italso doesn't mean they're not chasing performance. All it means isthat they're thinking about investment performance.

Maybe “thinking” isn't what they should do. Maybe they should be“rethinking” instead (see “Rethinking Performance Standards: Part I – TheFatal Flaw,” FiduciaryNews.com, November 13, 2018). And it'snot just investors who should be doing the rethinking.

Decades ago investment advisers discovered nothing held themback from reporting performance using any arbitrarily determinedperiod (as long as the period chosen made the investment adviserlook good).

These periods could have been based on fiscal year, differentquarter or month ends or, for those most creative, “marketcycle.”

Sure, the market goes in cycles, but if you ask five differenteconomists to set the beginning and end dates of any particularmarket cycle, you'd get at least seven different answers (and morelikely fifteen).

When investment advisers morphed into mutual funds, they foundthe required investment performance reporting a bit moreconstrained. Out went the market cycle, but the ever moveablefiscal year remained.

That was until about fifteen years ago. That was when the SECreformatted investment reporting on mutual fund prospectuses. Nolonger would funds be able to report performance figures across aspectrum of fiscal year ends (which mutual funds can change atwill).

Today, all mutual funds must report performance figures based onthe calendar year (but only in their prospectus–their annualreports show return figures based on fiscal year end).

On the face of it, this sounds extremely helpful. When the newreporting rules began, investors were finally able to comparemutual fund performance on an apples-to-apples basis. Sounds like awinner, right?

Well, it turns out the law of unintended consequences is apretty stubborn law. What the static performance reporting has doneis institutionalize the Snapshot-in-Time Anomaly.

This phenomenon covers up intra-period performance volatility.As a practical matter, this can have a tremendous impact on thereturn on regularly occurring investments – this means401(k) plans. Think of this as an ongoing sequence of return riskfor pre-retirees.

Here's the bottom-line: The actual performance experienced maynot be correlated to what's seen on the standard 1, 5, and 10-yearperformance charts, even if you include the traditional sequence ofindividual annual returns.

This isn't one of those “past performance does not guaranteefuture results” warnings.

This pertains to the real past performance experienced. TheSEC-mandated performance reporting simply does not reflect what atypical 401(k) saver sees in their asset growth.

It's time to rethink investment performance standards.

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