Investment newsletters and how they manipulate comparisons

In his column from Saturday, the Wall Street Journal‘s Jason Zweig smacks a few news organizations for bogus reporting of their stock-picking performance — including The Street.com and MarketWatch.com.

The criticism is interesting because The Journal and Marketwatch are both owned by News Corp. The trick many are playing is tracking their stock-picking performance including dividends against an index such as the S&P 500 without including dividends in the performance of the index.

Zweig writes, “Consider The Proactive Fund Investor, an online service edited by Bill Donoghue and distributed by MarketWatch, which, like The Wall Street Journal, is published by Dow Jones & Co. The newsletter recently compared its ‘total return’ to that of the S&P 500—without counting the dividends on the index.

“‘We don’t make a practice of promoting the performance of [our] newsletters,’ says MarketWatch editor-in-chief David Callaway, ‘because it inevitably leads to questions of accuracy.’

“To approximate Mr. Cramer’s return, you would have had to make an average of 774 trades annually over the past three years, Mr. Barton said.

“Meanwhile, you could have bought and held an S&P 500 index fund and then done utterly nothing except reinvest your dividends. And you, too, would have more than doubled the market’s return — calculated without dividends.”

Read more here. My take: The newsletters make a lot of money for their parent companies, but their touting hurts the credibility of business journalists at the same companies.