Beating the market using the benchmark that works for you

[sometimesinvestor]

https://www.marketwatch.com/story/why-i ... 1-01/print

I found this new information

[edgeagg]

I don't see anything new here. What does "beating the stock market" mean? Exceeding a median return for a year within a category like large cap? If so, by the very definition of median, 50% of funds would have "beaten" the median.

What did I miss?

[nisiprius]

What are the rules for a mutual fund choosing its benchmark? Whatever they are, in practice they seem to be consistent about sticking to the same benchmark over long periods of time. A fund could choose whether to benchmark to the S&P 500 Value index or the Russell 1000 Value Index, but whether by regulation or by custom, I don't think they change them year by year according to how Apple did that year.

As for choosing what index you prefer and choosing an index fund or ETF that follows it, this, in my opinion, is one of the weaknesses in factor-based investing and in other departures from the total market. Yes, even a total market index requires decision-making by the index provider, particularly at the low end with the smallest stocks. The index providers need to decide what stocks qualify for inclusion, but the stocks are tiny and so are the differences created by those choices. Total market stock indexes match each other very closely. On the other hand, it is a judgement call which countries are "emerging markets," which stocks are value stocks, and so forth, so there is much more room to worry and to argue about difference between them.

[RobLyons]

Not much new here. And no need to struggle to beat the market. Just mirror it while eliminating fees which beats most!

[nedsaid]

Reminds me of the old joke where the Doctor tells Groucho Marx to give up wine, women, and song. When asked what he did about the Doctor's advice, Groucho quipped, "I changed Doctors." It seems that in the investment world, if you don't like your investment results, you just switch benchmarks. I am certain there is an index out there for everyone. I can beat the market, you can beat the market, you just have to find the right index. The Groucho Marx solution.

[dbr]

I have long since concluded that the only useful meaning of a benchmark is whether or not an index fund that intends to follow an index is actually doing that. Setting a benchmark from an index or portfolio that is not what one invests in would be by definition meaningless.

[Phineas J. Whoopee]

I can do that with 100% reliability, if I get to choose the benchmark which works for me after the fact and put it in my annual report.

Putting it in the statutory prospectus in advance would expose me to underperformance risk.

PJW

[firebirdparts]

This is kind of like the greater fool theory. If your performance is terrible enough, the only benchmark available that is worse than you could be that one they call "average investor".

You can claim any performance you want for "average investor". Nobody's got the data. Look for examples of this in the financial press and you'll find plenty.

P.S. I remember also George Burns was asked what his doctor thought about him smoking at his age. He said "my Doctor's dead".

[David Jay]

Putting it in the statutory prospectus in advance would expose me to underperformance risk.

Superb understatement...