Saturday, January 30, 2016

On Barron's

Barron’s kept track of their recommendations in 2015. Their predictions from bullish articles were not that well but their predictions from bearish articles were fine. However, there were 146 bullish picks and only 17 bearish picks. If you picked stocks and betted evenly according to Barron’s, you lose big time.

They compared the performance of a stock to a specific benchmark. For example, you should compare Apple’s performance to a technical index (or an ETF simulating that index). It is really comparing apples to apples (no bunch intended) instead of comparing Apple to the general market (i.e. S&P 500 to most).

I disagree another comparison using stock’s total performance (i.e. appreciation + dividend) to S&P 500 without dividend. It is legal but not correct. During a flat market such as 2015, the dividend of about 1.9% for the S&P 500 index makes a huge difference. 

For example, the stock appreciates 1% and the S&P 500 also appreciates 1%, and hence it does not beat the market. Say the stock pays 2% dividend and so is the average of S&P 500 companies. The stock does not beat the market but it claims it beats S&P 500 by 200% as illustrated below:

  Beat S&P by = (3% - 1%) / 1% = 200% where 3% = 1% appreciation + 2% dividend  

This is how many investment newsletters fool us. Personally I love Barron's. At least 2015 was not a good year for their stock pickers. I do not want to speculate why the best minds in our industry cannot beat the market. It also reminds me of the benefit of top-down investing: invest when the market is not risky, and identify the best sectors and then the best stocks within the sector.


For more of my reasoning, check out the book described next. It has 800 pages (6*9) for $9.99. It could be the best $10 you ever spend.

The above is an abstract from my book "Complete the Art of Investing" which is available from Amazon.  

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