One problem that individual investors have–that they may not know they have–is that they don’t know how well or how poorly they’re doing.
When you’re a professional investor, you buy a portfolio accounting system that measures performance accurately. This is important to have when you’re managing other people’s money. It makes it possible to be transparent and to compare to a benchmark.
But individual investors aren’t going to shell out tens of thousands of dollars for this kind of software. And so they’re not accurately calculating their performance.
Instead, they’re relying on their brokerage statement, and usually the cost basis section of their brokerage statement. You can see percentage gains relative to the price you bought each position. But there’s no time component to that return. You doubled your money, but over what period of time? And what did the index do over that period of time? That makes all the difference.
Also, this doesn’t account for the fact that when people sell positions, they don’t own them anymore. And poof! They’re gone from the cost basis section of the statement. People tend to sell their losers, take the tax losses, and move on. Over time, the statements show only the winners and not the losers. That’s not accurate at all!
To sum up, they count their big winners, forget their losers, ignore time and ignore a basis for comparison.
Comparison is difficult because investors often don’t have an accurate accounting of their performance.
– Evan
Dock Street Asset Management, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Dock Street Asset Management, Inc.
It is published solely for informational purposes and is not to be construed as a solicitation nor does it constitute advice, investment or otherwise.
To the extent that a reader has questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult with the professional advisor of their choosing.
A copy of our Form ADV Part II regarding our advisory services and fees is available upon request.
Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Past performance is no guarantee of future returns.
