Monday, January 7, 2019

Land of Confusion: What did the market return in 2018? Really, now.

In today's Wall Street Journal (the Monday, January 7, 2019 edition), Suzanne McGee, in the "Best Stock-Fund Managers of 2018" writes that the S&P 500 returned "a 6.2% loss for the full year."


In the article immediately below this one, that is, on the same page, Mark Hulbert, in "The Skeptic's Guide to Yearly Performance Rankings," writes that the S&P 500 realized "a 4.4% loss [for the year]."

All right, then.

Who's on First?


Meanwhile, VFINX, Vanguard's S&P 500 index fund, reports a loss of 4.52% for 2018.

This includes annual expenses of 0.14%. Thus, roughly, deducting this expense ratio from 4.52% gets you -4.38%, or to within one decimal, Mark Hulbert's 4.4%.

I would thus consider this -- a loss of 4.4% -- to be the "right" return for the S&P 500 for 2018. If anyone else says 6.2% or something like this you can bet they have not included dividends, let alone reinvested dividends -- a bad, bad mistake. Yet, you will see this loss of 6+% in many places. Not good.

One more point and perhaps an occasional cause of error as well: An annual return must start counting from the ending price on the last day of the prior year to the ending price on the last day of the current year. Anything else gets you a mess.


If you'd like to calculate the return yourself, use Yahoo! Finance's S&P 500 total return index, counting from the adjusted close on the last trading day of 2017 to the adjusted close on the last trading day of 2018. If you do this, you will see the S&P500 returned a loss of 4.38% for the year:

(4984.22 - 5212.76)/ 5212.76 gives you -4.38%

This is the return for 2018. Just say no to anything else. Price indexes should never be used as the basis of your calculated returns. This is what the first author of the Wall Street Journal did. Not good.



Who's on First? (video:

No comments:

Post a Comment

Please send us comments here. Thank you.