This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How to Evaluate Your Portfolio This Year

As 2008 winds down, it is time once again to take that annual retrospective (and introspective) look at your investment portfolio.

In " How to Measure Your Investment Performance," I presented my grading system for evaluating your investments. To refresh your memory, the following is my system. (Please note: Performance should be calculated after you subtract all fees and expenses.)

  • Grade A: Your rate of return substantially outperformed your benchmark by more than 5.00%.
  • Grade B: Return performance beat your benchmark by at least 0.25%, but less than 5.00%.
  • Grade C: Return performance met your benchmark (or was within a reasonable margin of +/-0.25%).
  • Grade D: Return performance was below your benchmark by at least 0.25%, but less than 5.00%.
  • Grade F: Return performance was substantially below your benchmark, by more than 5.00%.
  • You can add a plus (+) if you were profitable or a minus (-) if you lost money.
  • My grading system is relative, but it also takes a little absolute performance into account.

    Now if you did poorly this year, do not fret. You are not alone. In 2008 the major indexes performed at their worst in nearly 80 years.

    What is important for you now is to understand what happened this year and recognize any investment mistakes that you may have made over the last 12 months. So let's take a look at four major factors that were characteristic of 2008 and may have contributed to your investment performance (for better or for worse) this year.

    1. Style Drift

    Maintaining a consistent investment style, with a consistent benchmark, is one of the keys to laying a foundation for investment management and performance. However, there is a tendency to try to switch from a previously targeted benchmark to a different benchmark just because market conditions have changed. This usually occurs during periods with either very good or very poor market conditions. In the investment world we refer to this as style drift.

    Style drift is where a portfolio manager attempts to "chase" performance by deviating from their stated investment style. For example, if you are a growth manager and you switch to a value orientation because value is "in vogue," then that's considered style drift. If you've always called yourself a fundamental investor and you decided to invest based on technical chart patterns, then you have committed style drift.

    1 of 3

    Check Out Our Best Services for Investors

    Action Alerts PLUS

    Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    Quant Ratings

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    Stocks Under $10

    David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    14-Days Free
    Only $9.95
    14-Days Free
    To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
    Submit an article to us!
    SYM TRADE IT LAST %CHG
    XLF $24.22 -0.06%
    AIG $56.77 -1.30%
    AAPL $126.97 -0.49%
    FB $84.25 1.40%
    GOOG $536.46 0.20%

    Markets

    DOW 17,986.65 -48.28 -0.27%
    S&P 500 2,102.30 +1.90 0.09%
    NASDAQ 5,020.2970 +25.6950 0.51%

    Partners Compare Online Brokers

    Free Reports

    Top Rated Stocks Top Rated Funds Top Rated ETFs