Why These Percentages You See Are NOT What You Think They Are

Updated: May 7, 2020

A lot of people have a misconception about what their investing platforms display.

Sound Familiar?

Have you ever been curious about how well an investment performed over a period of time, pulled up the ticker on Google, an investing platform, or Yahoo Finance and adjusted the dates to see how the security performed (and probably wished we invested in certain things before cursing that 20/20 hindsight)? Well you're not alone because as it turns out most of us fall prey to this "trap" of believing this is how a security performed and it's dangerous to our investing. That's right, just because you open Webull or Robinhood or whatever and see that after 5 years a stock made a 50% "performance" it doesn't mean that you'd have $150 today if you invested $100 5 years ago. We don't like to refer to these numbers but recognize that the majority of people are using this for their decisions so let's help clarify some confusion.


What These Numbers Mean

The percentages that you'll see as you thumb through investing platforms is simply the change in price *excluding dividends* either reinvested or otherwise retained. This could also neglect other disbursements paid out to shareholders but let's look at the difference of just factoring for dividends for now. Most organizations will do this because the investor has the choice to reinvest the dividends or not so it makes sense to provide just for the change in price alone. But for the individual wanting to know what $100 invested before is worth now, or is comparing securities against one another, it's not what you expect. Let's look at an example:

If you type "AAPL" into google you can see a quick chart on the company. By clicking and dragging (laptop or equivalent) or using two fingers (mobile) you can see this misunderstood performance. Below is the data we are looking at:

 
  • Start Date: April 10, 2015 (~5 years before time of writing)

  • Today's Date: March 31, 2020 (Prior to Market Open)

  • Starting Price: $127.10

  • Today's Pre-Market Price: $254.81

 

If we calculate the return on price alone it is ($254.81 - $127.10) / $127.10 = 100.48% and that confirms what we see in Google. To find out the performance with dividends you will have to find the historical data, use a calculator online, or do the math for your own investments. Sources that are great for close estimates are:

A note: We did say close and we did mean it. Getting the exact dividend return included with these estimates would be almost impossible because of a few variables that get in the way. That's of course, unless you had an investment to compare it to (e.g. putting $1000 in AAPL and $1000 in VFIAX, an S&P500 index). So let's see what these calculators show us AAPL really did in this time frame (Note that the SPY benchmark was their design not mine).

As it turns out, investing the dividends really yielded about 118% in that period and including the dividends not reinvested *without regard to opportunity cost* provided 111%. An 11-18% difference is nothing to scoff at; that's quite the difference! For most companies that can be years worth of added performance and for the average investor that could mean a whole different conclusion than what they imagined. So the next time you see a YouTube video and the influencer uses ^GSPC instead of ^SP500TR (the "Total Return" data), or even the Net Total Return data (yes, there's a difference) you'll think twice!


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