Avoid misleading statement of results
Integrity is key. My efforts are about actual results of investing the way I do in the stocks I do.
To that end, I track an actual dollar investment.
Motley Fool is not as honest, and it is typical of most newsletters that I have subscribed to or read. Motley Fool publishes stocks they like, easily 200+. They also track a preferred list of these gems.
When they publish the gems, they also publish performance and compare to the S&P. And they average the performance and show you how they achieve 37%+ versus a paltry 15% for the S&P.
The first thing to beware is that their average is not an annual average. That is, these stocks were purchased at various times over the past 2+ years. A longer time frame lets them put out a better performance. The annual performance is actually lower. Here are their top performers:
STLY - Motley bought 11/04 and claims a 33% growth since then. Growth in last 12 months = 20%
MIDD - Bought 12/04 and claims 88% growth. Last 12 months = 66%
CMN - Bought 12/04 and claims 12% loss. Last 12 months = 50% loss.
And on and on and on. In other words, actual 12 month performance is much worse than they are reporting and probably a lot closer to 20%, about the S&P performance over the same time.
In addition to manipulating the timeframe to distort the actual performance, Motley Fool does not track actual performance. They are tracking only the stocks they continue to follow. Along the way there have been underperforming stocks.
It works because new subscribers don't have the historical view of actual Motley Fool stock picking. The equivalent would be if I dropped all underperformers and spoke only about the hot stocks I've picked.
A more honest approach is to track the performance of an actual dollar investment. That's what I do and that's really all that matters. If you invested exactly as I did, you would have a 5 month 26% yield at a time when the broader market is ~7%.
No distortions. Just integrity.
To that end, I track an actual dollar investment.
Motley Fool is not as honest, and it is typical of most newsletters that I have subscribed to or read. Motley Fool publishes stocks they like, easily 200+. They also track a preferred list of these gems.
When they publish the gems, they also publish performance and compare to the S&P. And they average the performance and show you how they achieve 37%+ versus a paltry 15% for the S&P.
The first thing to beware is that their average is not an annual average. That is, these stocks were purchased at various times over the past 2+ years. A longer time frame lets them put out a better performance. The annual performance is actually lower. Here are their top performers:
STLY - Motley bought 11/04 and claims a 33% growth since then. Growth in last 12 months = 20%
MIDD - Bought 12/04 and claims 88% growth. Last 12 months = 66%
CMN - Bought 12/04 and claims 12% loss. Last 12 months = 50% loss.
And on and on and on. In other words, actual 12 month performance is much worse than they are reporting and probably a lot closer to 20%, about the S&P performance over the same time.
In addition to manipulating the timeframe to distort the actual performance, Motley Fool does not track actual performance. They are tracking only the stocks they continue to follow. Along the way there have been underperforming stocks.
It works because new subscribers don't have the historical view of actual Motley Fool stock picking. The equivalent would be if I dropped all underperformers and spoke only about the hot stocks I've picked.
A more honest approach is to track the performance of an actual dollar investment. That's what I do and that's really all that matters. If you invested exactly as I did, you would have a 5 month 26% yield at a time when the broader market is ~7%.
No distortions. Just integrity.
posted by Andrew at
10:30 AM
4 Comments:
Can you recommend any good newsletters ? You say you have tried many.
Maybe you can bin them with daytrading, short-term, long-term.
I admire the work you are doing. Just trading some of your picks has made me a bundle of money in the past few months. Keep up the good work ! You are doing a great service. There should be more people like you.
The scorecards on the Fool compare their pick's gainslosses to the S&P over the same period of time. There is no 12 month comparison. If they picked in December 2003, the S&P gain is calculated since then to now. If they exited a position, their loss/gain is fixed at the exit point. I don't see how this is misleading.
It is not a matter of performance against the S&P. Rather, by using varying dates, the Fool is able to artificially inflate the performance.
Mixing 2 year performances with 2 month performances is fine, as long as an annualized performance is also provided. They don't.
Whatever your portfolio, you look at long term performance and a more relative performance to create an apples-to-apples approach. The Fool does neither.
The long term performance is false because they don't show the other dozens of stocks they loved 2 years ago and were pumping.
The relative performance is also false because they are mixing time frames.
When you do try and layer in an annualized performance, you find the performance is much, much worse.
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