Hi Hardik
You are right, even I think – evaluating portfolio performance VS benchmark over the short term is not that important. To be honest, I don’t even actively track my direct equity IRR because I believe it limits my imagination ( LOL, can’t believe I just said that!!! )
For me, tracking error is an important concept from a behavioural aspect. With whatever little experience, what I have learnt is that – the market is brutal and it will surprise you both on the upside and downside – both in terms of returns and duration. Suboptimal portfolio design makes it difficult to stay the course when our portfolio is at the receiving end during these extremes. I witnessed this personally ( which you can read in my very first post ). It is better to be prepared or at least conscious about these possibilities especially in my case when I am concentrating on small – mid-caps rather than being reactive when the market strikes
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