The Daily Dow
Wednesday, August 13, 1997
by Robert Sheard

LEXINGTON, KY. (August 13, 1997) -- Continuing yesterday's theme of parallels between investing and golf (in honor of this week's PGA Championship at Winged Foot), I want to discuss an issue at the center of both activities -- accountability.

As any golfer will tell you, we generally remember the good holes and tend conveniently to forget the disasters -- the snowmans (8s) and stick-balloons (9s). It doesn't matter that one's birdie three on a par four came as a result of an extra-long drive, courtesy of a 100-yard journey down the cart path, and an approach shot that bounced off a golf cart to within six inches of the flag. A birdie is a birdie and there's no box on the scorecard for style points.

The same is true in the stock market, where investors remember the stock that doubled or the year they clobbered their peers and the market, while conveniently forgetting their overall long-term records. This became evident to me after a discussion with a golfing buddy several weeks ago. As often happens at the 19th hole with my golfing pals (the lounge where we imbibe after a round and tell each other testosterone-laden lies), the conversation turned to the stock market. (This happens frequently when others learn what I do for a living. I suppose there's some ego fulfillment in telling me just how brilliant one's own investments have been, putting me in my place as it were.)

My golfing buddy was boasting about how well his investment advisor has done over the last five years, averaging "about 22% a year." I remained quietly skeptical, simply because I knew his advisor and the fact that, as a mutual-fund asset allocator, he's rarely beaten the market. After our conversation, I double-checked the advisor's overall returns, and sure enough, he had returned 22% -- but only once in the last five years -- and that was in a year when the market did significantly better. His five-year annualized return, in fact, was only about 15%, well below the market's performance.

Without real accountability, the myths we live by do us a great disservice. If you've never hit a drive longer than 225 years, that 300-yard monster that gained 100 yards by hitting the cart path is hardly typical. If your best stock doubles in a year, that's hardly typical either if you're lagging the market for the last decade. Yet those successes are what we recall.

In today's Foolish Workshop column, then, I'll take you through the formulas you need to keep track of your returns legitimately. If you count every stroke, of course, as well as every loss and trading cost, your handicap may be more like 20 than 15, but at least then it's a legitimate record of your skill, not a myth. Accountability, Fool!

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. ________________________________

Stock  Change   Last
--------------------
T    -   7/8   39.63
GM   +   1/8   61.00
CHV  -1 13/16  79.00
MMM  -   5/8   93.88

           Day   Month    Year
        FOOL-4   -1.20%   2.18%   8.22%
        DJIA     -0.41%  -3.58%  22.95%
        S&P 500  -0.49%  -3.38%  24.47%
        NASDAQ   +0.45%  -0.65%  22.65%

    Rec'd   #  Security     In At       Now    Change
   1/2/97  153 Chevron       65.00     79.00    21.54%
   1/2/97  120 3M            83.00     93.88    13.10%
   1/2/97  179 Gen. Motor    55.75     61.00     9.42%
   1/2/97  479 AT&T          41.75     39.63    -5.09%


    Rec'd   #  Security     In At     Value    Change
   1/2/97  153 Chevron     9945.00  12087.00  $2142.00
   1/2/97  120 3M          9960.00  11265.00  $1305.00
   1/2/97  179 Gen. Motor  9979.25  10919.00   $939.75
   1/2/97  479 AT&T       19998.25  18980.38 -$1017.88


                             CASH    $857.10
                            TOTAL  $54108.48