Last Updated Feb 15, 2010 1:44 PM EST
I'm not going to beat on them again, or maybe just a little bit. This is a column on financial journalism where I try to investigate why the AP continues to report in this way that Wall Street so loves.
Why Wall Street Loves the AP
In my column "Associated Press (AP) Gets the Decade's Market Return Wrong Again", I make the point that an index excludes the part of the return that comes from dividends and that, in fact, the past ten years was not a lost decade. In actuality, U.S. stocks were flat and international stocks were up. Not stellar performance, but not a 23 percent loss either.
Now if I were the CEO of Goliath Investments, I'd send this AP article to all of my brokers with a letter like this:
To All Goliath Advisers
In the event that some of your clients note their accounts have not increased in value over the past ten years, I suggest you share the attached article noting the S&P 500 index is down 23% over the past decade. This will likely make your performance look good by comparison. Assure your clients that our award-winning research makes it highly likely that our market beating performance will continue.
In the event the client brings in research from the likes of Ron Lieber of the New York Times, MoneyWatch, or many others showing numbers that include all of the market's return, point out that those are from "for profit" publications and the AP is a not for profit institution. Its 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.
Honest Al Roth, CEO
Thus, the AP article is perfect fuel for the Wall Street market beating performance illusion.
Why does the AP keep giving Wall Street this gift?
For many years, I have been communicating to the AP that their bias in reporting only index returns, and comparing those returns to the total returns of other investments, is a bit like comparing apples to only parts of oranges. So this year I contacted Paul Colford, the AP Director of Media Relations. He asked me to put my questions in writing, and I did:
1) Why does the AP continue to report in this way?
2) Is reporting in this manner consistent with the AP mission?
The official response from Kevin Shinkle, the assistant business editor who oversees Wall Street coverage was - "Your notes and concerns were recently forwarded to me. You raise some points of interest to us at the AP, as we consider coverage going forward. If you're interested, I'd be happy to discuss via phone." Perhaps you also noticed that the AP didn't exactly answer the questions. So I called Mr. Shinkle and, after some discussion, he did ask that the rest of the conversation be off the record.
It was dÃ©jÃ vu all over again, or maybe that movie "Groundhog Day," but I found myself in exactly the same place I was five years ago when I first contacted the AP on this practice that I felt was misleading and harmful to readers. The only difference might have been that the organization compounded this bias ten-fold by doing it for a decade. If I had to give myself a grade for getting the AP to report market performance more accurately, it would be an F, for complete and utter failure.
My Take on This AP Practice
What is particularly frustrating for me is that, in the many years of discussion with the various folks at the AP, no one has ever disagreed with my point that reporting market returns using the S&P 500 index without dividends is misleading. Nor has anyone denied that Wall Street uses the AP numbers to make their results look good.
I don't believe for a minute that there is anything under the table going on that causes the AP to report in this manner. And I applaud the AP for continuing to have a dialogue with me on this issue. I actually believe the root causes for this biased reporting are ignorance and inertia.
The ignorance comes from the widely held acceptance of the S&P 500 index as the stock market, rather than taking a step back to get all of the return of all of the market. The inertia comes from the ease of calculating the index return in the way that it has always been calculated.
Will the AP change?
I suspect the AP will eventually begin reporting more accurate returns, though certainly not because of my influence. The reason will more likely come from the fact that many top publications, from The New York Times to the Wall Street Journal, are usually getting it right. Once it becomes the standard, the AP may be forced to follow.
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