Wednesday, April 7, 2010

The Best Investor 2010 - First Quarter Results

Last January, I posed the question that buying shares in the S and P 500 may be just as effective as following professionals' stock market picks.  Some women who are participating in the Self-Invested Women Pilot Program are considering whether they are passive (people who buy an index, like the S and P 500) or active (people who buy individual stocks or types of stocks, like energy and health care) investors.  This may help you make that decision.
The S and P 500 Index
This index allows investors to buy 75% of the publicly traded companies in the US, many of which derive a significant part of their income outside the country.  While there are many indexes (Dow Jones Industrial, the Russell 2000, the Wilshire 5000), the S and P 500 is the index against which the vast majority of money managers measure their performance.
The Challenge
Last September, ten investment strategists gave their recommendations for which sectors of the market would outperform the total market in 2010 in Barron's magazine.  We chose six of these strategists, representing US Trust, Citigroup, JP Morgan, BlackRock, Deutsche Bank and Goldman Sachs.  We'll compare the S and P 500 index performance against the sectors recommended by each investment professional, assuming you were to invest equally in all sectors.
Fees
It requires no management fee to invest in an index like the S and P 500.  Investment advisers' fees range from 2% to 5%.  We'll use the lower figure, 2%, for this comparison, and deduct 1/2% every quarter from the recommendations by the advisers. 
Since there are trading costs for both individuals and money managers, we'll consider this a "wash."
Long Term Investing
We'll assume that we're in the stock market for long term investing, not short term "trading."  Therefore, one quarter's data is insufficient to make this decision.  We'll look at this performance all year, and discuss how relevant this little experiment is to your long term strategy.
First Quarter Performance
S and P 500
S and P 500 was up 6.04% in the first quarter this year.
US Trust
Technology + 10.45%
Materials + 6.89%
Energy + 5.04%
Industrials + 4.77%
Weighted Average performance +6.7875%, less 1/2% fee = +6.2875%
US Trust's recommendations beat the S and P 500 by about a quarter of one percent in the first quarter.
Citigroup
Materials + 6.89%
Financials - 3.68%
Software + 10.45%
Energy + 5.04%
Weighted Average performance + 4.675%, less 1/2% fee = +4.175%
Citigroup's recommendations lagged the S and P 500 by about 1.87% the first quarter.
JP Morgan
Energy + 5.04%
Industrials + 4.77%
Financials  - 3.68%
Technology + 10.45%
Materials + 6.89%
Weighted Average performance + 6.166%, less 1/2% fee = +5.666%.
JP Morgan's recommendations lagged the S and P 500 by about 3/8 of one percent in the first quarter.
BlackRock
Energy + 5.04%
Health Care + 8.53%
Weighted Average performance + 6.785%, less 1/2% fee = + 6.285%.
BlackRock beat the S and P 500 by just under 1/4 of one percent in the first quarter.
Deutsche Bank
Technology + 10.45%
Health Care + 8.53%
Energy + 5.04%
Industrials + 4.77%
Weighted Average performance + 7.1975%, less 1/2% fee = +6.6975%.
Deutsche Bank beat the S and P 500 by 3/4 of one percent in the first quarter.
Goldman Sachs
Energy + 5.04%
Materials + 6.89%
Financials - 3.68%
Technology + 10.45%
Weighted Average performance + 4.675%, less 1/2% fee = 4.175%.
Goldman Sachs lagged the S and P 500 by 1.865% in the first quarter.
Summary
So far this year, three underperformed the S and P 500 and three lagged behind its performance, with Deutsche Bank doing best, and Goldman worst.
Last year, only Deutsche Bank and JP Morgan beat the averages, and four lagged behind.
Another update after the second quarter.
We'd love to hear your thoughts.  Are you an active or passive investor - and why?

1 comment:

  1. LOL Ms. Kitty... I look at these numbers and my mind goes blank!! so we're gonna have to say that I'm a beyond passive investor. I think i'm a passive aggressive investor!

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