In the investment context, a post-mortem exercise is an analytical process which dissects investment results to understand how the research, decision making and trading operations contributed to the outcome. Post-mortem exercises can help improve the investment process, which in turn can bring stronger and more consistent investment returns.    

A recent long-form paper by TD Asset Management Inc. (TDAM) examines the factors that make a post-mortem exercise successful. It also provides an inside look at the post-mortem process followed by the firm's Active Fundamental Core Growth Equity Investments Team - as well as the lessons, which are applicable across all asset classes, that investors can draw from that.

The paper identifies three factors that are needed for a successful post-mortem.

1.      Firm Culture and Focus on the Process

Since the post-mortem requires an honest assessment of one's decisions, the team must have a strong culture of trust and respectful challenge. Everyone should have an equal right to provide an opinion without fearing backlash from more senior team members. Also, the post-mortem discussion should focus on aligning the research efforts with the investment philosophy and process and on finding opportunities for improvement. The goal should be to dissect the decision, not to murder the decision maker.

2.      Data and Documentation

For a robust post-mortem analysis, the team needs to have access to a reliable and comprehensive data source. Much of the analysis will focus on the market conditions, in addition to portfolio holdings. Similarly, accurate and reasonably detailed records of the investment thesis and decision are critical because human minds can confuse facts with perceptions, and our memory is not as reliable as we think.

3.      Commitment and Implementation

A post-mortem exercise is an investment. Team members must devote time and resources to ensure a successful outcome. Full participation is important as everyone needs to demonstrate commitment and buy-in to the process as well as to the recommendations for improvement coming out from the exercise. 

How TDAM Does it

The Active Fundamental Core Growth Equity Investments Team started conducting a post-mortem exercise in 2014 in an informal manner. After an investment research recording system was adopted in 2016, the process was significantly improved in 2017, allowing the team to precisely reconstruct the life cycle of an investment and helping to expand the scope of the post-mortem analysis. Thanks to these iterations and investments in data bases and a documentary depositary platform, the team has been able to create the robust post-mortem framework it has today.

Everyone on the team – portfolio managers, fundamental research analysts and in-house quantitative and risk management professionals - participates in the post-mortem exercise. During the exercise, team members scrutinize every step of the investment process: quantitative screening, fundamental analysis and portfolio construction.

The team carries out a post-mortem exercise semi-annually, in June and December. Each exercise involves a week of preparation work, followed by a week of team meetings where team members from different offices travel to meet in person.

For more details about the June and December post-mortems, as well as about the lessons for investors they offer, check out the full paper.

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