UP UNTIL MARCH, the few fund managers who were able to keep their portfolios in the plus column were heralded as investment geniuses. But with the markets up sharply this year, anything less than double-digit returns seems embarrassingly tame. Some sectors haven’t just performed well — they’ve kicked tail. For example, Internet stocks, which we first highlighted last fall, have taken top honors with 100%-plus gains.
But while we’d all like to see our investments on the “top performers” list, what traders should strive for isn’t necessarily the biggest return, but the most consistent.
Let’s define our terms. Consistent trading doesn’t mean that every trade is a winner, or even that in every quarter one is able to achieve a positive return. It does mean, however, that over any statistically meaningful length of time — say, a rolling 18-month period — your overall investments will have gained in value.
The return doesn’t always have to be stellar, but it does have to be positive. With all due respect to Legg Mason fund manager Bill Miller, consistently beating the Standard & Poor’s 500 doesn’t mean much when the S&P declines for three straight years. You can’t spend relative performance. (more…)