The Knowledge Curve: Quantifying the Value in Disciplined Investing

In speaking with credit union professionals over the past 16 years, one of the most intriguing similarities among management teams is their lack of awareness with regards to the wide disparity between top performing investment portfolios and bottom performing investment portfolios.

As illustrated in the graph below, we compared credit union investment portfolios from around the country and their performance relative to that of their peers. At a given point in time, the performance differential between top and bottom performers ranges from 300-600 basis points (bps). This wide disparity is common when comparing loan portfolio performance, due to factors such as credit issues, different geographics and varying loan types. However, in terms of the investment portfolio, the majority of institutional investors not only have access to the same analytics and data to help them determine the most beneficial risk/reward investments for their institutions, but they are also able to purchase securities for about the same price. Thus, the explanation for this performance disparity is less obvious.

The graph below shows the annual difference between credit unions in the 20th percentile of performance and credit unions in the 80th percentile. Over the course of a typical year, there is a difference of approximately 144 bps. To put this in terms of dollars, for every $100M in the investment portfolio, this difference represents about $1.44M in additional earnings year after year. Today, there is an even more pronounced difference of approximately 300 bps between 20th and 80th percentile institutions, which represents $3.0M in additional earnings for every $100M in the investment portfolio.

Given these sobering analytics, we refer to this concept as “The Knowledge Curve,” since the top performers must know something that the bottom performers do not know. This knowledge is crucial to their potential outperformance, particularly in this era of increased regulatory security and the necessity for a balance sheet to outperform.

For more information about The Knowledge Curve, please visit

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