1. When more stock in a company that is already owned is purchase 3 or more months after the previous purchase or at a price that differs by more than 30% from the previous purchase it is treated as a separate purchase. This only happens when something important has changed, such as the stock's price going down significantly.
2. Some but not all of the original position has been sold. The part of the position still held is valued as of 6/31/10. In calculating the holding period of stocks with only part of the original position still held the holding period days reflect the fraction still held. For example, if half of a position is sold after 100 days, then the holding period 100 dyas after the sale be calculated to be 150 days.
3. None of the original position has been sold. Position is valued as of 06/30/10.
4. So recently purchased that annualizing the return would not be meaningful. In calculating the average annual return the holding period return was used.
5. The geometric average annual return is recognized by authorities as the correct way to calculate the annual return on investments.
       
   Geometric Average = (1 + Holding Period Return)^1/N - 1
       where N equals the holding period in years.
   
   The geometric average is always less than the arithmetic average that one learned to calculate in high school. For example, if a stock goes up 50% in the first year and goes down 50% the second year it has lost 25% of its value yet the arithmetic average return is 0.0%. The geometric average return of -13.4% is a much more accurate reflection of what happened to the stock's price.

Let's Get Started Planning Your Financial Success

Call (609) 683-8005 today for a no-obligation, complimentary consultation.

The table above give the investment results for individual stocks. Of greater interest is the return on Dr. Wertz's portfolio. Dr. Wertz does not have the records needed to calculate the average return for his entire portfolio. He does, however, have the records to do this for his IRAs. For the period 1/1/2000 to 6/31/2010 his IRAs are up 370% while the market is down 16%. This translates into a geometric average annual return of 15%/year for Dr. Wertz's IRAs. While 15%/year is impressive when compared to the market's -1.5%/year return, it is very different from the 39%/year return on the average stock.

Some of the reasons for differences between the return as measured by the average stock and the geometric average return for the IRAs.

• A standard average, which was used to calculate the average stock's return, is always higher than the geometric average.
• The average return on stock's purchased has meaning only when applied to stock investments. However, the IRAs were on average only 56% invested in stock during this time.
• A portfolio's return depends not only on the securities in it but also on the relative amounts of these securities. The risk of a security is one of the criteria used in determining the amount of a security to purchase. This weighting process can reduce portfolio returns below average security returns.

Let's Get Started Planning Your Financial Success

Call (609) 683-8005 today for a no-obligation, complimentary consultation.

During 2006 and 2007 Dr. Wertz was unable to find stocks that meet his time tested and very successful selection criteria. To test alternative criteria, he put relatively small amount of money into the stocks listed below. Events showed that he should have stuck to his proven stock selection process. These stocks were not used in calculating the average return.