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Performance Calculation Methodology
Since The Turnaround Letter's inception in 1986, performance calculations have followed a strict methodology based on research provided by impartial independent researcher Hulbert Financial Digest (nka Hulbert Ratings), the industry standard for independent analysis of investment publications. This methodology is based on the perspective of subscribers, executing recommended trades at the prices prevailing when an anonymous subscriber would have first been able to act on the recommendation, and the calculations specifically provide for the following:
- If the recommendation is received before the opening of NYSE trading, the recommended trade is executed at the average of the security's high and low prices in that day's session.
- If the recommendation is received after the NYSE opens but before the close of trading, the trade is executed at that day's closing price.
- If the recommendation is received after the close of NYSE trading, the trade is executed at the average of the security's high and low prices in the subsequent day's session.
- If an adviser wishes a trade to occur at other prices--such as at the opening, or at limit prices--then that must be explicitly stated.
With this protocol, regardless of whether a market order is executed at the closing or the average price, however, Hulbert Financial Digest adjusts that price upwards (when buying) or downwards (when selling) according to an estimate of that security's bid-offer spread on that day. In addition, Hulbert Financial Digest debits a commission on all transactions, the rate of which is based on average commissions at the nation's largest discount brokers on average-sized transactions. (This rate changes periodically to reflect current conditions.) The one-way commission rates currently are 0.05% for stocks, 1.5% for options and for futures contracts 0.05% of the contract's value. Mutual fund loads and redemption fees are debited.
Hulbert Financial Digest's calculations do not take taxes into account; however, dividends, splits, corporate actions and fund distributions are credited on the day the security goes ex-dividend. The following considerations on performance calculation should also be noted:
- Purchase stocks only when the market price is below the "buy" limit. Stocks that reach or exceed the "buy" limit or have a recommendation change to a "hold" are considered "sold. If the stock subsequently declined to below the "buy" limit before the publication recommends a sale, the stock is repurchased.
- Whenever there is a buy/sell transaction, the portfolio is rebalanced back to equal dollar weighting for each position. Purchases are priced at the "ask" price and sells are priced at the "bid" price. Commissions of 0.1% are paid on the traded shares (buys and sells), but not on the other trades in the rebalancing.
- Dividends are accrued as cash, then reinvested at the next rebalancing.
- At month-end, portfolios are rebalanced to equal dollar weighting for each position, using month-end closing prices plus accrued dividends.
- Performance of separate portfolios are aggregated using a simple equal-weighted averaging of their returns. For The Turnaround Letter, the Small-Cap, Mid-Cap and Large-Cap segments are aggregated into the combined overall return in this manner.