Monday, June 6, 2011

Interesting way to increase your odds of beating the market

In his weekend column for The Wall Street Journal, Jason Zweig points out a method that some advisors have apparently used to outperform (or at least increase their chances of outperforming) their benchmark: simply calculate the return of the index without taking income into consideration. He mentions a few advisors who, for example, compare their performance to the S&P 500 sans dividends. One individual claimed that he was "CRUSHING the S&P 500." Well, I guess it can be a lot easier to do this if you include income in your portfolio, but ignore it in the index.

Fortunately this isn't standard practice. If one choose to do this, we would expect they would include a footnote explaining this practice, but we also shouldn't be surprised if this added detail is overlooked.

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