How is performance calculated?

Fool newsletters measure performance by averaging the percentage gains in stock price of each recommendation arithmetically. What?! In plainer English, we simply add the percentage gains and divide by the number of recommendations. All stocks are weighted evenly, regardless of holding period. The S&P 500 returns, which we use for comparison in most cases, are calculated the same way. They represent the returns to an investor making regular investments in the S&P 500 on the same days our newsletters are released.

Our Motley Fool Income Investor and Motley Fool Inside Value newsletters include dividends in their return, accounted for by adjusting the cost bases of the respective stocks. These newsletters compare their returns to the SPDR unit investment trust, a dividend-incorporating exchange-traded fund that mimics the S&P 500.

Motley Fool Stock Advisor incorporates only special dividends, which it subtracts from stocks’ cost bases. Motley Fool Champion Funds, our mutual fund newsletter, accounts for distributions by reducing funds’ costs bases. It compares recommended stock funds to the S&P 500 and bond funds to the Lehman Brothers U.S. Aggregate Bond Index.

Finally, out- and underperformance differentials are given as percentages of the investment principal.