The instant the lamb chop hits the water, there is turmoil as the fish devour the meat. Very soon the meat is gone, leaving only the worthless bone behind, and the water returns to normal. Similarly, when new information reaches a competitive market there is much turmoil as investors buy and sell securities in response to the news, causing prices to change. Once prices adjust, all that is left of the information is the worthless bone. No amount of gnawing on the bone will yield any more meat, and no further study of old information will yield any more valuable intelligence.
Appropriate benchmarks refer to comparable securities of similar characteristics.
In other words, its important to compare apples to apples and oranges to oranges. For instance, small stock fund performance is best compared to an index of small stocks and growth stock fund performance is best compared to a growth stock index. Style Analysis and Mutual Fund Performance by John C. Bogle . Copyright 1999 Investor Home. All rights reserved.