During due diligence, it's crucial to look beyond returns. Top allocators analyze a manager's decision-making process, not just the outcome. They penalize managers who were “right for the wrong reasons” (luck) and give credit to those who were “wrong for the right reasons” (good process, bad luck).

Limited Partners (LPs) value fund managers who are willing to listen and internalize market feedback, even if they ultimately follow their own strategy. This openness is a key positive signal, while a refusal to listen is a major red flag that often appears early in the relationship.

Don't view a 1% management fee abstractly. On a $1 million portfolio, it's $10,000 a year. You could learn the basics of a simple index portfolio from a free one-hour YouTube video. This reframes the decision: is it worth paying someone $10,000 for a task you could learn in an hour?

To avoid emotional, performance-chasing mistakes, write down your selling criteria in advance and intentionally exclude recent performance from the list. This forces a focus on more rational reasons, such as a broken investment thesis, manager changes, excessive fees, or shifting personal goals, thereby preventing reactionary decisions based on market noise.

Data over the last decade shows that 97% of professional stock pickers, despite their resources, fail to beat a basic market index. Ambitious individuals often fall into the trap of thinking they're the exception. The most reliable path to market wealth is patient, consistent investing in low-cost index funds.

Judging investment skill requires observing performance through both bull and bear markets. A fixed period, like 5 or 10 years, can be misleading if it only captures one type of environment, often rewarding mere risk tolerance rather than genuine ability.

The true cost of underperformance isn't just a smaller portfolio; it's lost time. A client saving $100k/year for 16 years earned 5% instead of a market-rate 8%. This 3% gap meant she couldn't retire and had to work an additional 6-7 years, highlighting the real-life impact of overseeing investment results.

Investors obsess over outperforming benchmarks like the S&P 500. This is the wrong framework. It's possible to beat the index every quarter and still fail to meet your financial goals. Conversely, you can underperform the index and achieve all your goals. The only metric that matters is progress toward your personal objectives.

Money, particularly inherited wealth, carries a significant emotional charge. Investment professionals have a profound responsibility for this intimate, human element. Focusing solely on returns neglects the crucial role of managing the feelings, history, and family dynamics attached to the capital.