Preaching to the choir, I know, but I thought some might find this interesting. Yet another great argument for Bogleheads, a bit of vindication of sorts. I am a librarian at a public library and purchase the investing/personal finance/economics books for the collection and each year I get the annual edition of "The 100 Best Stocks to Buy" which is put out by Peter Sander and Scott Bobo. It's always interesting to look at them when they arrive because they make an effort to be straight forward about recapping the previous year's selection and performance. Ok, so what's my point?
First, their own quotes regarding their performance from the 2012 edition...
"Okay, we'll cut to the chase this year. Our investment performance, compared to a buyable basket of S&P 500 companies, was mediocre. For this year, anyway, we didn't justify your purchase of this book! If we were eighth graders, we would have earned a 'C.'"
"If you had invested $100,000 in our 100 Best Stocks 2012 list, $1,000 in each of the 100 stocks, on April 1, 2011, you would have had $103, 213.33 on April 1, 2012, not including dividends paid during that period. The return is just 3.2 percent. Including dividends of some $2,327, you would have had $105,540.48. The S&P as measured by the buyable "SPDR" S&P 500 Trust was ahead 5.4 percent ($105,400 implied return) -- a virtual dead heat."
So they seem to be claiming that they beat an S&P 500 index fund by $140 yet failing to acknowledge the upwards of $800 one would have spent on trading costs to purchase the aforementioned 100 shares of each of the 100 companies in the comparison (granted they are not actually advocating this strategy).
This was still all well and good with me until I got to their argument against the use of funds and "index investing." Among their list of the failings of indexing is "Tendency toward mediocrity." Not only that, they single it out as the greatest shortcoming of indexing - and I quote:
"Worse - and this is the biggie from our perspective - you're getting all the companies in the industry - the mediocre players, the weak hands - not just the best ones."
This is so comical to me, on so many levels. They had just gotten through, 50 pages earlier, admitting that their best efforts earned them a "C"! That their performance was "mediocre" - the very criticism they leveled against indexing they've already acknowledged they were guilty of! I just don't see how they could possibly publish a book with a straight face and claim that you shouldn't index because indexing does not allow you to select just the best companies, yet when they did in fact choose what they perceived to be the "best" companies they did no better than the "mediocre" performance of all the companies, good, bad, and in between. Not to mention that these are full-time professional market analysts advocating their strategy to readers who presumably have far less time and ability to do the "homework" necessary to select the "best" companies.
The final head shaker in, or rather on, this book is the "badge" on the cover which proclaims, "OUR 2012 PICKS BEAT THE S&P AVERAGE BY 6.6%!" Huh?? I am no statistician, but I do not see how $105,540.48 is 6.6% greater than $105,400. Am I missing something here or is there just a blatant lie on the cover of the book?
For anyone wondering at this point why I would buy the book for the library, it's not hard to imagine that these are popular books with our patrons. I purchase a wide variety of books that I have to hold my nose when doing so, e.g. All About Day Trading, et al.
Last edited by Taggerung
on Thu Apr 04, 2013 8:39 pm, edited 2 times in total.