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The
purpose of the GTI is to measure the performance
of the universe of Gilder stocks -- ie., the companies included in the list of "Telecosm Technologies" each month in the Gilder Technology Report, but excluding any whose stock is not readily available to individual American investors. It is intended to serve as a benchmark for Gilder investors to evaluate the performance of their portfolios. By comparing the GTI to published market indexes, we can also follow how the Gilder stocks as a group are faring compared to other market segments. This is not to say that the GTI is anyone's recommended portfolio, neither mine nor the Gilder group's. Decisions as to which stocks to buy, and when to buy them, are beyond the scope of the GTI.
What
I have sought to create in the GTI is
a generic
equal-dollar index, one whose day-to-day performance can be reproduced by anyone. (Note the exception for "penny stocks" adopted effective May 6, 2002.)
I
started it at 10,000 on January 1, 1999. From that
point on, it has changed each time it was updated by the amount of the average change for the GTI companies. (Until December 1, 2000, the GTI was updated daily. It is now updated weekly, after the last session of the week.)
To
illustrate, suppose that there were 28 companies
on the list. Suppose that Company A was +1.82%, Company B was -0.38%, and so on down the list. I add up the 28 individual changes and divide by 28. That gives me the average change. I then increase (or decrease) the prior GTI by that amount, and the result is the new GTI. Some people think that it's not valid arithmetically to add up percentage changes and then divide by the number of companies. They're worried that it's somehow wrong to add a plus percentage to a minus percentage, or to add percentages at all. Under other circumstances, they might have a point. But here we are working with an equal dollar portfolio, so the procedure is completely accurate and appropriate. To illustrate, suppose that in the preceding paragraph we had instead talked about having $100 invested in each company. Suppose we then had said that Company A was +$1.82, Company B was -$0.38, and so on. Obviously, when we sum the 28 companies' dollar returns, we get the portfolio's dollar return. When we then divide by $2,800 (the portfolio's value at the start of the day), we get the portfolio's percentage return. Clearly this is a valid procedure. This topic and others are examined both in FAQ's and Is It Accurate? When a new company is added to (or removed from)
the Gilder list, I
wait until the end of the week to reflect
the change in the GTI, unless it happens so early in the
week that I can still
go back to the end of the preceding
week, which I do when the Gilder Report comes out on a Monday or before the market closes on a Tuesday.
The GTI may understate
typical Gilder performance, for
at least two reasons. The first is that every company in it is weighted equally. Given the freedom to buy with different weights, we ought to be able to beat a mechanistic equal-weight portfolio. (I wish I could weight the GTI stocks by GG's relative enthusiasm for each, but that would be too subjective to be practical.)
Second, as individuals we are free to time our sales
and purchases according to a
stock's changing price
from time to time. That should give us an edge against the GTI, which must buy as soon as a company is added to the list, and may not sell until it is removed.
Note
that the GTI is not itself a possible portfolio. It
effectively reallocates its holdings after each update, in order to once again have an equal dollar amount invested in each company. For a real-world investor, the transaction costs would be prohibitive. (And yet . . .)
Rather
than a portfolio, the GTI is an index, just as the
NASDAQ and S&P are. Their relative weights are based on market capitalization, but that is not a useful measure for Gilder investors. Why would we buy more of a stock just because the issuer had a greater market value? Thus there seems to be general consensus among Gilderites that our best benchmark is an equal-dollar index. The GTI's virtue is that it doesn't become unequal over time.
While
the GTI began on January 1, 1999, the GTR goes
back to August of 1996. That first year was sporadic, with only three issues produced, and there was no explicit list of recommended companies. By early 1997, though, it had evolved into the report we know and enjoy today.
To complete the record,
I have estimated what 1997
and 1998
GTI performance would have been. It is
included in the Year-by-year Performance table on the home page. |
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