Posted by on Jul 12, 2011 in Articles & Advice, Blog, Columns, Featured |

Image Credit: Christophe Vorlet

By Jason Zweig | July 9, 2011


The market is up 9% this year. Or is it?

For investors, there isn’t an easy way of knowing for sure.

After Friday’s drop, the Dow Jones Industrial Average and the Standard & Poor’s 500-stock index are 11% and 14% below their respective highs of Oct. 9, 2007.

Yet these numbers tell only part of the story. For most individual investors, getting a clear picture of where your portfolio stands isn’t easy. The performance numbers cited above don’t count dividends, which can influence returns significantly.

Factoring in dividends, the Dow on Thursday was only 0.1% below its all-time high, while the S&P 500 was off just 6% from its own highest level ever, according to MorningstarFor the year so far, they were up 11.3% and 8.7%, respectively, factoring in dividends.

According to Ivan Hoff, an editor at and analyst at Ivanhoff Capital in San Diego, 157 stocks hit all-time closing highs on Thursday. Mr. Hoff counts only those stocks priced above $5 and with average daily volume of at least 50,000 shares—a sample of slightly less than 3,100. By that measure, one out of every 25 stocks touched its highest price in history this week, including, Halliburton, 3M, Tiffany and Tupperware Brands. On average, since late June, 78 stocks a day have hit their highest closing prices ever.

That, Mr. Hoff says, is “an indication of returning risk appetite.”

Of course, when it comes time to spend all the money you are making, you will have to reckon with inflation. Beginning in October 2007, inflation would have eaten away 9% of your purchasing power, leaving the dividend-adjusted Dow off some 8% from its peak in real terms and the S&P down 14%.

Then again, for 2011, the dividend-and-inflation-adjusted Dow is still up an estimated 5%.

Why does this bull market seem so forlorn? Recovering from a loss feels very different from giving up a gain. Psychological experiments have shown that if an investment goes up, then falls back to what you paid for it, you will tend to fixate on the times when the investment was rising above your purchase price. But if, instead, it goes down after you buy, then you will focus on how much you paid for it—effectively turning your entire investing experience into a desperate wait to get back to break-even so you can get out. It is no wonder investors have been dumping stock funds like mad even as the market has been steadily rising.

In that get-back-to-break-even frame of mind, you may be blind to the income that your investment has generated along the way. Popular market websites like Google Finance and Yahoo Finance don’t help, since their charting functions—which so many investors use to see how their holdings have done—don’t include income from dividends or interest in their calculations of return.

“What I want to be able to do is to look at those different locations where my nest egg is stored and try to determine whether my financial advisers are doing a good job,” says Tom Chubb, a retired marketing executive for Michelin North America who lives in the Detroit area. “But I can’t find a good website for making comparisons that include income, and I’m a bit surprised that it’s not easier to do.”

Pankaj Agrrawal, a finance professor at the University of Maine who has surveyed the chart displays on market websites, says, “The slow, steady and silent growth that dividend or interest income can provide over time isn’t reflected on these price graphs.” That can afflict investors with what Mr. Agrrawal calls “an optical bias”—for example, underrating the importance of dividends in stock returns.

From the “performance” tab at, you can compare a stock or an exchange-traded fund against the S&P 500, with dividends included throughout. But the measurement period is fixed, and you can’t compare against any index except the S&P 500. Matt Hougan, president for ETF analytics at, says he expects his site to provide total-return charts by the end of the year.

Nearly 2,000 users have “liked” a request for total-return charts at Google Finance’s product-ideas page; a Google spokesman says, “We welcome the feedback, but we don’t have any specific plans to announce.” A spokeswoman for Yahoo says total-return charts are “in the pipeline” but wouldn’t provide a timetable.

Being a stock investor has always been hard. How strange that at a time when so many investors feel lost, technology isn’t providing a simple form of comfort.



Source: The Wall Street Journal,





For further reading:


Definitions of DIVIDEND, TOTAL RETURN, YIELD in The Devil’s Financial Dictionary

Chapter Seven, “Regret,” in Your Money and Your Brain

Chapter Eight, “The Investor and Market Fluctuations,” in The Intelligent Investor



Michal Ann Strahilevitz et al., “Once Burned, Twice Shy: How Naive Learning, Counterfactuals, and Regret Affect the Repurchase of Stocks Previously Sold” (Journal of Marketing Research, 2011)

At Long Last, Could the Dividend Revolution Be Here?

A (Long) Chat with Peter L. Bernstein