What is Performance Evaluation?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 14 October 2018
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In investing circles, performance evaluation is the process used to assess the manner in which a given stock or other security generates a return. Like other forms of evaluation, this process normally considers the performance of the security within a specific time frame. This makes it possible for the investor to determine if the amount of return is acceptable, as well as helping in the decision to hold on to the security, or to sell at the earliest possible opportunity.

The process of performance measurement will vary somewhat, depending on the type of security under consideration, as well as the stated goals of the investor. The idea is to determine if the security reached the benchmarks set by the money manager, and if so, by how much those benchmarks were exceeded. At the same time, the performance evaluation makes it easier to determine how close the performance of the security came to realizing the goals set by the investor, and which factors inhibited the overall forward movement of the security.

Investors often make use of a performance evaluation as part of the process of assessing the current status of an investment portfolio. Along with the amount of profit generated from the assets contained in the portfolio, the investor will also consider the expectations for each security during the time frame cited. This is often as crucial as identifying the rate of return generated by the securities.


For example, the performance evaluation may find that one security was more or less flat during the period under consideration. If the investor had expected that particular security to increase in value to a given benchmark, and it failed to do so, the investor will want to look at the reasons why the level of performance was less than expected. If those factors are likely to remain in place for an extended period of time, the investor may choose to sell the security, and purchase something that is more likely to generate the desired return in upcoming periods.

When it comes to frequency, some investors will choose to conduct a performance evaluation on a monthly basis, while others favor a quarterly or semiannual approach. Depending on the volatility of the securities contained within the portfolio, a semiannual or even an annual evaluation may be sufficient. As long as the process allows the investor to identify whether or not each holding is reaching the goals put in place by the investor in a timely manner, how often a performance evaluation is conducted is strictly up to the investor and any money managers the investor hires to oversee the productivity of the assets.



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