You’ve all seen the outright lies by which some very unscrupulous marketers try to sell past investing performance. Without naming names (and paraphrasing somewhat), the typical pitch goes like this. “Over the past 24 years, our stock picking has beat the SP500 by 754.3%.”
Now, here’s the real skinny. They obtain their supposed performance number by crediting themselves with having achieved a 949% gain over the period from Jan 2002 to present, all the while subtracting from that number the mere 195% gain that they attribute to the SP500.
Three questions should immediately come to mind.
#1. Has that performance claim been independently verified by a reputable accounting firm that made those results public? (If not, then why not?)
#2. Were the costs to an investor for obtaining that stock picking advice from the stock pickers (perhaps via a newsletter that came with an annual subscription cost) been subtracted from the putative gains? (If not, why not?)
#3. Given that the SP500 index cannot be bought, only derivatives that track it, such as SPY, what gain would have an investor have achieved over that same, 24-year period if he/she did nothing more than make a one-time, initial purchase of SPY? (Answer: 944%, as anyone can verify for her or himself by pulling the historical data for SPY from any of many sources, all of which should give you the opportunity to back in the dividends you would have received during your holding period.)
So, this seems to be the case. Once the costs to the newsletter subscriber have been deducted, and once a strawman benchmark has been discarded in favor of a real-world, real-time, easily verified alternative, it can be easily proven that those wanna-be stock pickers UNDER-PERFORMED --yet again-- what simple, effortless, passive investing would have achieved for an investor.
In sum: Fault the SEC all you want for its many failing, but they do offer clear warnings about the scam of trying to sell past investing performance. CAVEAT EMPTOR!