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Technology Stocks : Intel Corporation (INTC)
INTC 35.53-1.1%Nov 14 9:30 AM EST
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To: Paul Engel who wrote (91242)10/29/1999 1:11:00 AM
From: Aaron Cooperband  Read Replies (1) of 186894
 
Paul -

Re: "I often wonder why Wall Street big shots always emphasize the SHORT TERM, trade in and out on whims, while all the time trying to con individuals into thinking this is a LONG TERM INVESTMENT BUSINESS "

The way you measure performance can have a dramatic impact on the way the portfolio manager runs his/her portfolio.

Right now, money managers' performance is measured against an index on a PRE-TAX basis. This allows them to take profits freely while trying to beat their index. The investor pays for this at the end of the year when he/she receives short and long term taxable capital gains distributions from the fund and must pay taxes on them. Although the investor's long term net return is hurt by this, because of the way the accounting works the money managers don't have to count the taxable distributions against their performance.

Vanguard may be breaking this unpleasant chain of events by beginning to quote after-tax returns on their funds. This would then be compared to the after-tax return of an appropriate index to see how well the portfolio manager is doing. If this catches on, look for fund managers' short term trading to fall dramatically.

Aaron
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