Kansas City investors have to trust financial planning and investment advice is in their best interest and not investment promoters that tout “stock-picking” prowess. One such promoter and newsletter service was singled out in Wall Street Journal by Jason Zweig in the June 4-5 edition of The Intelligent Investor.
Jason writes: “Various investment promoters are touting their stock-picking prowess by comparing their returns, including dividends, to the Standard & Poor’s 500-stock index without dividends. It is a lot esier to beat the market when you don’t count its entire return. Over the past decade, according to Standard & Poor’s, the S&P 500 benchmark gained an annual average of just 0.72% without dividends. But with dividends included, the S&P’s total return reached 2.81% annually.”
TheStreet, a newsletter co-founded by CNBC host Jim Cramer, gives trading-tips services via email alerts called Action Alerts PLUS. Sent out under Mr. Cramer’s name, with the subject line “My portfolio is CRUSHING the S&P 500,” the email said Action Alerts PLUS is “producing some truly incredible results.”
Read more to see how Mr. Cramer’s newsletter was totally misleading……
There are two main ways to earn returns: price appreciation and income. “If you systematically exclude one of them from your benchmark while knowing that your strategy includes them, you’re making a fundamentally unfair comparison.” The Securities and Exchange Commission requires mutual fund companies to include the dividends of an index they compare their fund to. Money managers (like our own Matson Money) abiding by voluntary guidelines known as the Global Investment Performance Standards must do the same.
The SEC does not hold newsletter publishers, financial media reporters and popular newsstand publishers to this same standard. TheStreet general counsel, Gregory Barton confirmed in an email that Mr. Cramer’s performance does include dividends while the S&P 500 return cited in the promotion did not. Had Mr. Cramer’s performance comparison to the S&P 500 been “apples to apples”, he squeaked past by a cumulative 0.9 percentage point. This is before tax and the annual subscription fee of $299.95 the first year.
To approximate Mr. Cramer’s return, you would have had to make an average of 774 trades annually over the past three years. Meanwhile you could have bought and held an S&P 500 index fund and then done utterly nothing except reinvest your dividends.
Registered Investment Advisory Firms spend countless hours researching and studying what the BEST possible advice for investors is. My firm is no exception to that. There’s no incentive to stock pick, market time, or track record invest with your money. The advice you get is the advice I personally practice.
Thanks Jason Zweig for this great article.
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