Saturday, May 31, 2008

When Past Results Often Guarantee Future Peformance

A common disclaimer for financial results is "Past results do not guarantee future performance," indicating that it is difficult to predict the future returns of any investment. While this statement may be true for financial matters, I have found that the opposite is true in other areas , such as businesses or individuals. When dealing with companies and people, past results often predict future performance:

  • Company behavior - How a company interacts with its employees or customers generally predicts what will happen in the future. Usually, when a company treats me well, I continue to be treated well over time. However, when I receive unsatisfactory treatment initially, I continue to be disappointed with future interactions. While this observation is not 100% correct, I have found the correlation happens often enough to base a decision on the first interaction.

    In my younger days, I would give companies a second chance, hoping that they might change, because I got a good deal in another area. Nowadays, I just switch companies, even if I lose the benefit I liked. First, it is not my job to train a company to treat me well. Second, I no longer have the patience to work with a company who gives bad service.

  • Individual behavior - I think people are generally hard wired to behave the way they do, with changes not being likely, especially for adults. For example, reliable, hard working or diligent people tend to be consistently reliable, hard working or diligent. People that miss deadlines, do minimal work, or are rude to co-workers, tend to consistently do so.

    In a company, since we ultimately had to continue working with each other, we used "performance appraisals" to help the individuals improve their performance. However, in my experience, often there was no change in an individual's behavior or performance.

  • So now, when I work with someone or a company, I believe that "past results often guarantee future performance." I now try to avoid working with those where I think their past performance does not meet my standards of "good." This approach works well for me whether a person or a company, and especially those running for elected office.

    For more on Reflections and Musings , check back every Saturday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC


    Anonymous said...

    While I agree with you that past performance often indicates future performance in companies and individuals, I think it's important to consider this truism in light or our personal lives and finances.

    Just because we have typically done something in the past, does not mean we have to do it again in the future. Because consistency is so important to people, we tend to lock ourselves into non-beneficial and even self-destructive behavior, when what we really need to do is to leave the past behind and change what we are doing.

    Our past performance is tied to our actions which is tied to our mindset and the way we believe the world to be, but these are far from who we are. If we have failed in the past, it is because of our beliefs, decisions, actions. Change these, and you change the results.

    Super Saver said...

    @ I Want A Million,

    I agree that people can change. Those that do often benefit from the change.

    For reference, I'm not advocating against change. I was making the observation that, in practice, many individuals and companies don't change, perhaps because permanent change is very hard to do.