I read this Forbes' column by David Dreman on MaoXian's site the other day (who I think got it from VInvesting) and it's good stuff. Dreman talks about indexes such as the S&P 500 being "misleading" benchmarks for people to use in measuring investing performance.
Dreman makes an excellent case, though I'm surprised he didn't mention using a fixed-result benchmark such as that of Southeastern Asset Management (the folks running the Longleaf funds). Their benchmark is the rate of inflation plus 10%.
Back in the go-go days of the tech bubble, such a result would be held up as laughable on CNBC. But the more I think about it, the more appealing it is.
For one thing, reality and time have taught us that achieving a portfolio return of inflation plus 10% consistently over the LONG TERM isn't easy.
And here's something else to consider:
Let's say the S&P 500 (or whatever index we wanted to use) lost 9% one year and our portfolio lost 8%. Well, you and I "beat" the S&P 500 -- but we'd hardly be delighted.
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