Good Apples & Oranges help avoid Lemons

Tuesday, December 22nd, 2009 by Charles Mayfield, CFP®



There are certain inevitable truths to our business.  Much like in life, we should frequently be reminded of how certain aspects of the world work in order to save ourselves the aggravation and heartache that comes with miscalculated action.  In a recent review with one of our clients, I was shown a spreadsheet that the client had put together to keep track of his investments.  He stated that his philosophy was simple…compare the balance on each account from the beginning of the year to the end.  From this, he was able to deduce which investments had performed poorly versus those that had risen to the top.


On the surface this seems like a perfectly adequate way of assessing the success of your portfolio.  However, he is excluding a very important factor in evaluating his money’s performance…they aren’t all the same kind of investments.  You can’t fairly compare an apple to an orange in much the same way you can’t compare a equity money manager to that of a bond.


This Callan Chart details a number of asset classes and their performance over the last 20 years.  You’ll quickly notice several things:

1. Very rarely does any one particular style-box stay in the same place

a. In most cases, the top performers in one year move to the bottom of the chart in subsequent years

2. In most cases, bottom performance tends to be followed by a rise in relative performance in the years to come

3. There seems to be little rhyme or reason as to how these categories flow year to year


As we near the end of 2009, there is a good chance that many of you are pulling out your statements and trying to get a grip on what has been a pretty stellar year for investors.  Please heed my warning…don’t jump to ill-advised conclusions about the relative performance of your money.  Talk to your financial professional before you make any changes to your portfolio.  It could lead to that lemon.


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