Associated Press (AP) Gets the Decade's Market Return Wrong Again

Last Updated Dec 30, 2009 7:03 PM EST

I've had a long-running disagreement with the AP. Year after year in this decade, they have published articles on annual stock market performance that used the raw S&P 500 Index, stripped of dividends. The only difference this year is that they did if for the whole decade.

String of Investment Bubbles Marked 2000-2009
The AP story notes that the S&P 500 Index has fallen 23 percent this decade, but neglects to mention that it's only part of the return of part of the stock market.

For two years, I have contacted the AP to advise them that reporting only the S&P 500 index is a bit like giving a basketball score, excluding all of the points from the free throw line. Each year they acknowledge my point, yet they continue the same practice. My annual exercise in futility.

So since the AP won't tell you, I will. Markets have NOT fallen 23 percent this decade. It's the total return that matters. U.S. stocks remained flat this decade, while International stocks were up 28%. Not great performance, but certainly not as bleak a picture as the AP painted.

You'll get no argument from me that this wasn't a great decade for investing. I'm just saying it wasn't the Lost Decade either.

To learn more about why the S&P 500 index isn't the stock market and how financial markets really performed, see my column:

Why It Wasn't a 'Lost Decade' for Investors

I made a prediction that the media would report market returns incorrectly using the S&P 500 index. I felt pretty confident the AP wouldn't let me down on this issue, and they didn't.

Don't set your investment aspirations to only capture part of the return of the least risky and largest U.S. stocks. Your financial future will be better served capturing all of the market returns capitalism has to give.

Also, here's an excerpt from the book, How a Second Grader Beats Wall Street, on my interactions with the AP on this issue:
I once read an Associated Press column in the local paper at the end of the year with the usual drivel about how the average mutual fund beat the market, using the raw S&P 500 index as the market. I emailed and called the reporter to explain that he was comparing global returns to a portion of the S&P 500 returns, noting that his conclusion could wrongly lead people to dump low-cost index funds and feed more money to Wall Street. He was polite, seemed appreciative, and appeared to understand my point.

Even though he didn't publish a correction, I felt good about the exchange-until the next year, when this same reporter did the same comparison. I'm sure you're familiar with a popular definition of insanity as doing the same thing over and over again and expecting different results. Perhaps I had finally crossed that line between tenacity and insanity, because I wrote the reporter just before the close of the following year, and asked him if we was going to again do the story comparing the total returns of global portfolios to partial returns of the S&P 500.

At least the story didn't appear that year.
Obviously, my impact with the AP was not long lasting.

Postscript: According to the AP's website:
AP's mission is to be the essential global news network, providing distinctive news services of the highest quality, reliability and objectivity with reports that are accurate, balanced and informed.
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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

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