Benchmarking

can reveal a strategy that is not scalable or performance chasing). A simple example, imagine you buy 1 share of a $100 stock and it returns 10% in the first year and you add to the position buying another 10 shares for $110 and it loses 10% the following year. So the stock has went from $100 to $110 and back down to $99. The stock has lost 1% of its value in 2 years but you have spent $1200 ($100 + $1100) and liquidated your 11 shares after 2 years for $1089 (11 shares x $99 selling price). You experienced a 9.25% loss over 2 years despite an underlying asset that has only lost 1% over 2 years. It is more difficult to calculate dollar weighted return but can be revealing about how a manager [or you] actually perform.