A Yardstick For Your Own Stock Deals

Another "must" - once you're past the casual-investor stage - is to be able to chart your own performance in the market. Far too many people neglect this. They know only whether they're up or down, making or losing money, on paper. But they don't really know precisely how much, and many would miss the mark by a far cry if pressed for an answer.

If you feel that you need a working track record, there is a way to set up your own simple but informative personal performance index. It will help you to know (1) exactly where you stand on paper, (2) whether your research - or advice - has been good, bad, or indifferent, and (3) whether your portfolio needs more work, time, and personal attention.

To set up an index, you first add the current market values of the various securities in your portfolio. Then you divide this total by an arbitrarily chosen divisor, say 100. This gives you a base index, a starting point.

Say your portfolio totals £100,000; if your divisor is 100, your base index becomes 1,000. A simple chart based on 1,000 units can be used to trace progress. If your 200 shares of XYZ Corporation go up £10 in a week, the new reading on your index is 1,020 (£102,000 divided by 100). That's a 2% gain - over and above your original £100,000 portfolio value.

The divisor (100) stays the same until you liquidate part of your holdings, or invest more money. When this happens, you adjust the original divisor. If you add £20,000 to your £100,000 portfolio, the new divisor (x) would be 100/x = £100,000/120,000. Or by cross-multiplying, 120. So you divide your new total investment by 120 and this keeps your base index at 1,000. No matter how your total investment in the market may change, you retain the same base index from which to judge your performance.

The fun comes when you measure your market performance against some of the established indexes, such as the Dow-Jones average of industrial common stocks, or Standard & Poor's average based on 500 commons (the latter is more revealing since it's broadly based).

You'll get a more realistic comparison when you pit your personal index against those of top professional investors. To beat the Dow is one thing; to beat the best-performing mutual funds quite another. You can obtain figures on funds through your broker, or from Fundscope magazine (1900 Avenue of the Stars, Leeds, Calif.).

When you try comparing your investment performance with those of the professionals, you'll find that you can make firmer judgments about your own research and the sources of your advice and shape of your portfolio. But you'll also come up sharply against the question: Just what are you hoping to do in the market? The whole exercise will probably help you to keep your objectives fixed more firmly in mind.

Tax note: Keep accurate records of all buys and sells in the market. Among other things, they help in filing a clean tax form 1040, and even may keep you from selling something held 51/2 months, just short of the present capital gains starting point.


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Today's Blue Chip May Be Tomorrow's Red-ink Loser

Dear old Cousin John - going back to the Gay Nineties - made secure by a portfolio based on some of the bluest blue-chips of the day - British Cotton Oil, British Sugar, Reading Gas, Distilling and Cattle Feeding, Tennessee Coal and Iron, and UK. Leather Preferred.

Today an investor would as likely find one of those issues on a list of blue-chip stocks as to be run down by a Locomobile. Yet they were among the 12 stocks which in 1897 composed the Dow Industrial Average, and were the "core" or basic blue-chips for most carefully managed portfolios. As durably "safe" as core stocks are supposed to be, fashions do change in securities as in soaps or breakfast cereals. Of Dow's impeccable... see: Today's Blue Chip May Be Tomorrow's Red-ink Loser