Riding Again?

by Harry Jones

(July 22, 1999) -- The mower is fixed but it's been so dry we haven't needed it. It's been a bad farming season, and this late in summer not much can save it. We'll have a below-average crop. Worse is that prices remain so low. The government pays above market to help. They store it and let a lot of it go to waste. The corporate farmer gets a leg up again this year. Private farms are closing every day. That makes it even harder to convince your sons to take the reins. They want to work in new businesses.

Why is Harry Underperforming?

by Jeff Fischer (TMF Jeff)

Yesterday Fool John Norman questioned on the message board why Harry Jones's portfolio has a different return than the S&P 500 this year, when both returns are measured from the first day of the year. The answer is brutally simple: Harry is an idiot.

No, wait. Sorry.

The answer is brutally simple: commissions. (Thank goodness Harry can't read this. I was merely joking, however. But not about commissions.)

I don't know which broker Harry used, but he paid a commission of $49.50 to make the first trade in his $2,000 account. That's a substantial bite. On day one, the portfolio began 3.62% in the hole. If Harry had been more knowledgeable, he could have paid as little as $7 in commissions. Live and learn.

This portfolio's return frequently differs from the S&P 500 on a daily basis as well, at least by small amounts. This is because SPY doesn't track the S&P 500 perfectly every day, although over time the difference dissolves almost into nothing. Spiders, or SPDRs, are securities that represent an interest in a portfolio of securities held by a unit investment trust and then trade like a share of stock. Because they trade on the open market, they track the S&P 500 very closely. If SPY trades even slightly above the value of the S&P 500 index, sellers emerge to take advantage of the situation. If they trade below cost, the shares are quickly bought until they match the index.

SPY isn't always perfectly matched to the S&P, though. Some days SPY will rise 0.17% while the S&P 500 will gain 0.24%, for example. The market isn't always exactly perfect, and being slightly off one day means that SPY will be slightly off the next day, too. In the end, though, the total value created will be the same as the S&P 500 index, minus the 0.184% SPY fee. For much more information on SPY, visit the explanation page linked below (and here).

 Recent Harry Jones Portfolio Headlines
  08/26/99  Is it a Nifty 500? Part II
  08/19/99  Is it a Nifty 500? Part I
  08/12/99  Illuminating Index Funds, Part Two
  08/05/99  Illuminating Index Funds
  07/29/99  The Foolishness of Index Funds
Harry Jones Portfolio Archives »  

07/22/99 Close

Stock Change Close SPY -1 13/16 136.02
Day Month Year History HARRY -1.32% -0.72% 6.57% 6.57% S&P: -1.33% -0.86% 11.30% 11.30% NASDAQ: -2.80% -0.04% 22.43% 22.43% Rec'd # Security In At Now Change 1/4/99 16 S&P Depos 127.63 136.02 6.57% Rec'd # Security In At Value Change 1/4/99 16 S&P Depos 2042.00 2176.25 $134.25 CASH $0.00 TOTAL $2176.25 Yesterday Today Change S&P Depos 137.83 136.02 -1 13/16


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