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Beat the S&P is Good Enough For Me

Why is the S&P the most acceptable benchmark? That's because it is the one that everyone else is using. Which is to say that it is the "least common denonminator" for American investors, as well as a widely accepted proxy for American industry.

But supposed I'm using  "exotic" strategies such as high yield or emerging markets. Should I then use the S&P as a benchmark, or one more specific to the strategy. In many cases, the S&P is still appropropriate. If I use occasional international stocks, I'm really trying to beat my home market (unless it's an all international portfolio, in which case I'd use EAFE as the bogey). Thus, I'm really measuring my ability to get what  "everyone else" gets, plus a little more.

Perhaps you say that this confers an unfair advantage. It's an advantage, certainly, but not necessarily unfair. A person who goes out of the home market in search of "extra" return and gets it, should be rewarded on this basis, without having to be measured against other investors who are more expert in the one area.

David Swensen, of the Yale Endowment can outperform "within class." But his main contribution to investing was to push out the efficient frontier to include timber, real estate, alternative investments, etc. while trying to outperform other college endowements. He should be measured against this standard, rather than say, hedge funds specializing in these areas.