How do you know how well your investments are doing? Seems like a pretty easy question, doesn?t it? If one of your investments has earned more than the other, then the former is doing better, simple! Well, that?s not quite always the case.

The fact is that we are not as adept to measuring the performance of our investments as we think. An old business management adage says, ?You can?t manage what you don’t measure?. Isn?t that then the answer to why managing investments is such a headache for the most of us? Of course, I don’t mean to say that we don’t measure; we do, but just the very basic. We know how much we have invested and at times we have a fair idea of how much our investments are worth as well. If we are looking to sell our investments then we come to know exactly what we have earned from them. This, for the most of us, encompasses everything about measuring investments. But the most important thing ? knowing how well an investment is doing in comparison other investments ? is something that eludes us.

I realised how common this problem is during a recent conversation with an acquaintance. He was telling me how his real estate investments have done better than his stock investments. He had bought two plots of lands in Gurgaon in 1990, for Rs 3 lakh. Almost two decades later, he sold off the two plots for Rs 67 lakh when the real estate sector was going through one of its worst times. By his own admission, he received much less than what he should have. But yet, he was quite happy with getting Rs 67 lakh from an investment of Rs 3 lakh. Even more so because his stock investments made at various times between 2004 and 2008, hadn?t fared as well. He had invested amounts ranging between Rs 1 lakh to Rs 5 lakh, of which some had done well, some had done alright while some had even turned to losses. Taking a panoramic view of all his investments, it became apparent to him that his real estate ones had done better.

I, of course, wasn?t satisfied. So I pestered my friend with questions and conducted a deeper evaluation of his investments. What I found was that both his stock and real estate investments had earned him around 18 per cent per annum. The two investments had vast differences in time, liquidity and manageability, which my friend had failed to take into account. The results of my analysis hence came as a shock to him. Not to me, however.

Measuring the returns of our investments is the most suitable way of learning how they are performing. Getting a certain amount in return of another amount isn?t a holistic manner of gauging an investment. Measuring investments goes beyond just the returns as well. Diversification is another important aspect. My friend incurred losses in his stock investments because he was overexposed to one particular sector, ironically, real estate.

Investments need to be adequately measured, which by itself isn?t really a hard task. Just Googling some formulae can help you find out how well your investments are doing. And for those who require detailed analyses, a panoply of websites offer analysis tools. Of course, the one I vouch for is the Portfolio Manager available on valueresearchonline.com. Choose what suites you best, but do analyse and measure.

?Author if the CEO of Value Research