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Monday, June 13, 2011
One of my favorite characters in animated films is Iago, the parrot in Disney's Aladdin. His sarcastic response of "Why am I not surprised?" to various revelations always got a chuckle out of me.
This was brought to mind by Jason Zweig's "Here's One Way to Beat the Market." In it, he points out the practice of some money managers of comparing their performance, including dividends, with the S&P 500, excluding dividends.
Stephen Horan of the CFA Institute points out, "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."
One of the culprits named is Jim Cramer. His trading tip service from TheStreet.com, Action Alerts PLUS, proclaimed it was "CRUSHING the S&P 500." Actually it was - without dividends included for the S&P 500. With an apples-to-apples comparison, the story was much different. The advantage was less than 1%/year and that was before trading costs, the annual subscription cost, and tax consequences.
One can only wonder how widespread the practice is.
So the plot is a bit different, but the ending is the same.
Why am I not surprised?