In Financial Bull Riding I wrote that annual percentage returns is the wrong measure of investment performance. The better metric is absolute dollar return. Naive investors, and most financial journalists, assume the two will produce the same results, but they don't.
Josh Peters, Director of Equity Income Strategy for Morningstar and the author of The Ultimate Dividend Playbook, calls chasing percentage returns a horse race:
Almost all of Wall Street is geared around this idea of a horserace. That it’s all about trying to beat your benchmark, beat the S&P 500 — to do it every quarter regardless of whether that quarter is up or down. That’s not what most people are looking to do. That’s only how money managers evaluate each other, maybe. But that’s not necessarily what’s going to serve the actual financial requirements or financial needs of people who are out there. The biggest demand out there is for income and it’s not just because interest rates are low, it’s because baby-boomers are retiring and most of them don’t have those defined benefit pension plans to count on.
