How to interpret stock performance charts “vs S&P 500”
tl;dr: The CNN Money and Yahoo Finance charts are wildly inaccurate. The TD Ameritrade chart appears to be accurate and shows returns with reinvested dividends. Ignoring buggy data, CNN most likely shows reinvested dividends for quoted securities but not for the S&P 500 index. Yahoo most likely shows all returns without reinvested dividends. Thanks to a tip from Grade Eh Bacon, I was able to determine that TD Ameritrade reports returns with reinvested dividends (as it claims to do). Eyeballing the chart, it appears that S&P 500 grew by ~90% over the five year period the chart covers. Meanwhile, according to this S&P 500 return estimator, the five year return of S&P 500, with reinvested dividends, was 97.1% between July 2012 to July 2017 (vs. 78.4% raw returns). I have no idea what numbers CNN Money is working from, because it claims S&P 500 only grew about 35% over the last five years, which is less than half of the raw return. Ditto for Yahoo, which claims 45% growth. Even stranger still, the CNN chart for VFINX (an S&P 500 index fund) clearly shows the correct market growth (without reinvesting dividends from the S&P 500 index), so whatever problem exists is inconsistent:  Yahoo also agrees with itself for VFINX, but comes in a bit low even if your assume no reinvestment of dividends (68% vs. 78% expected); I'm not sure if it's ever right.  By way of comparison, TD's chart for VFINX seems to be consistent with its ABALX chart and with reality:  As a final sanity check, I pulled historical ^GSPC prices from Yahoo Finance. It closed at $1406.58 on 27 Aug 2012 and $2477.55 on 28 Aug 2017, or 76.1% growth overall. That agrees with TD and the return calculator above, and disagrees with CNN Money (on ABALX). Worse, Yahoo's own charts (both ABALX and VFINX) disagree with Yahoo's own historical data.
"A minor tangent. One can claim the S&P has a mean return of say 10%, and standard deviation of say 14% or so, but when you run with that, you find that the actual returns aren't such a great fit to the standard bell curve. Market anomalies producing the ""100-year flood"" far more often than predicted over even a 20 year period. This just means that the model doesn't reflect reality at the tails, even if the +/- 2 standard deviations look pretty. This goes for the Black-Sholes (I almost abbreviated it to initials, then thought better, I actually like the model) as well. The distinction between American and European is small enough that the precision of the model is wider than the difference of these two option styles. I believe if you look at the model and actual pricing, you can determine the volatility of a given stock by using prices around the strike price, but when you then model the well out of money options, you often find the market creating its own valuation." Robert Shiller published US Stock Market data from 1871.  Ken French also has historical data on his website.  Damodaran has a bunch of historical data, here is some historical S&P data. This didn't answer his question. Also, while I agree with you that the Dow is meaningless (and your explanation why). In the investment industry, we don't only focus on the S&amp;P Index.. Many have a specific benchmark they aim to outperform that matches their investment strategy (i.e. Russell Mid Cap Value, Russell 3000, etc.). "This chart concerns an option contract, not a stock. The method of analysis is to assume that the price of an option contract is normally distributed around some mean which is presumably the current price of the underlying asset. As the date of expiration of the contract gets closer the variation around the mean in the possible end price for the contract will decrease. Undoubtedly the publisher has measured typical deviations from the mean as a function of time until expiration from historical data. Based on this data, the program that computes the probability has the following inputs: (1) the mean (current asset price) (2) the time until expiration (3) the expected standard deviation based on (2) With this information the probability distribution that you see is generated (the green hump). This is a ""normal"" or Gaussian distribution. For a normal distribution the probability of a particular event is equal to the area under the curve to the right of the value line (in the example above the value chosen is 122.49). This area can be computed with the formula:  This formula is called the probability density for x, where x is the value (122.49 in the example above). Tau (T) is the reciprocal of the variance (which can be computed from the standard deviation). Mu (μ) is the mean. The main assumption such a calculation makes is that the price of the asset will not change between now and the time of expiration. Obviously that is not true in most cases because the prices of stocks and bonds constantly fluctuate. A secondary assumption is that the distribution of the option price around the mean will a normal (or Gaussian) distribution. This is obviously a crude assumption and common sense would suggest it is not the most accurate distribution. In fact, various studies have shown that the Burr Distribution is actually a more accurate model for the distribution of option contract prices." "While it's definitely possible (and likely?) that a diversified portfolio generates higher returns than the S&P 500, that's not the main reason why you diversify. Diversification reduces risk.  Modern portfolio theory suggests that you should maximize return while reducing risk, instead of blindly chasing the highest returns. Think about it this way--say the average return is 11% for large cap US stocks (the S&P 500), and it's 10% for a diversified portfolio (say, 6-8 asset classes). The large cap only portfolio has a 10% chance of losing 30% in a given year, while the diversified portfolio has a 1% chance of losing 30% in a year. For the vast majority of investors, it's worth the 1% annual gap in expected return to greatly reduce their risk exposure. Of course, I just made those numbers up. Read what finance professors have written for the ""data and proof"". But modern portfolio theory is believed by a lot of investors and other finance experts. There are a ton of studies (and therefore data) on MPT--including many that contradict it." "Yes, there is a very good Return vs Risk graph put out at riskgrades.com.  Look at it soon, because it will be unavailable after 6-30-11.  The RA (return analysis) graph is what I think you are looking for. The first graph shown is an ""Average Return"", which I was told was for a 3 year period.  Three period returns of 3, 6 and 12 months, are also available.  You can specify the ticker symbols of funds or stocks you want a display of.  For funds, the return includes price and distributions (total return), but only price movement for stocks - per site webmaster. I've used the graphs for a few years, since Forbes identified it as a ""Best of the Web"" site.  Initially, I found numerous problems with some of the data and was able to work with the webmaster to correct them.  Lately though, they have NOT been correcting problems that I bring to their attention.  For example, try the symbols MUTHX, EDITX, AWSHX and you'll see that the Risk Grades on the graphs are seriously in error, and compress the graph results and cause overwriting and poor readability. If anyone knows of a similar product, I'd like to know about it.  Thanks,  George" "Since these indices only try to follow VIX and don't have the underlying constituents (as the constituents don't really exist in most meaningful senses) they will always deviate from the exact numbers but should follow the general pattern. You're right, however, in stating that the graphs that you have presented are substantially different and look like the indices other than VIX are always decreasing. The problem with this analysis is that the basis of your graphs is different; they all start at different dates... We can fix this by putting them all on the same graph:  this shows that the funds did broadly follow VIX over the period (5 years) and this also encompasses a time when some of the funds started. The funds do decline faster than VIX from the beginning of 2012 onward and I had a theory for why so I grabbed a graph for that period. My theory was that, since volatility had fallen massively after the throes of the financial crisis there was less money to be made from betting on (investing in?) volatility and so the assets invested in the funds had fallen making them smaller in comparison to their 2011-2012 basis.  Here we see that the funds are again closely following VIX until the beginning of 2016 where they again diverged lower as volatility fell, probably again as a result of withdrawals of capital as VIX returns fell. A tighter graph may show this again as the gap seems to be narrowing as people look to bet on volatility due to recent events. So... if the funds are basically following VIX, why has VIX been falling consistently over this time? Increased certainty in the markets and a return to growth (or at least lower negative growth) in most economies, particularly western economies where the majority of market investment occurs, and a reduction in the risk of European countries defaulting, particularly Portugal, Ireland, Greece, and Spain; the ""PIGS"" countries has resulted in lower volatility and a return to normal(ish) market conditions. In summary the funds are basically following VIX but their values are based on their underlying capital. This underlying capital has been falling as returns on volatility have been falling resulting in their diverging from VIX whilst broadly following it on the new basis." Could somebody explain to me exactly why the writer doesn't think this is a win for passive investing? Aren't 'this could happen' statements only relevant to active managers so if you already believe that active investing is more successful than passive then of course you'll just fit this situation to 'there is still potential for major loss, the S&amp;P has tanked x many times' because you believe that there are predictable patterns in markets while the passive investor says that isn't true. "You are probably going to hate my answer, but... If there was an easy way to ID stocks like FB that were going to do what FB did, then those stocks wouldn't exist and do that because they would be priced higher at the IPO. The fact is there is always some doubt, no one knows the future, and sometimes value only becomes clear with time. Everyone wants to buy a stock before it rises right? It will only be worth a rise if it makes more profit though, and once it is established as making more profit the price will be already up, because why wouldn't it be? That means to buy a real winner you have to buy before it is completely obvious to everyone that it is going to make more profit in the future, and that means stock prices trade at speculative prices, based on expected future performance, not current or past performance. Now I'm not saying past and future performance has nothing in common, but there is a reason that a thousand financially oriented websites quote a disclaimer like ""past performance is not necessarily a guide to future performance"". Now maybe this is sort of obvious, but looking at your image, excluding things like market capital that you've not restricted, the PE ratio is based on CURRENT price and PAST earnings, the dividend yield is based on PAST publications of what the dividend will be and CURRENT price, the price to book is based on PAST publication of the company balance sheet and CURRENT price, the EPS is based on PAST earnings and the published number of shares, and the ROI and net profit margin in based on published PAST profits and earnings and costs and number of shares. So it must be understood that every criteria chosen is PAST data that analysts have been looking at for a lot longer than you have with a lot more additional information and experience with it. The only information that is even CURRENT is the price. Thus, my ultimate conclusive point is, you can't based your stock picks on criteria like this because it's based on past information and current stock price, and the current stock price is based on the markets opinion of relative future performance. The only way to make a good stock pick is understand the business, understand its market, and possibly understand world economics as it pertains to that market and business. You can use various criteria as an initial filter to find companies and investigate them, but which criteria you use is entirely your preference. You might invest only in profitable companies (ones that make money and probably pay regular dividends), thus excluding something like an oil exploration company, which will just lose money, and lose it, and lose some more, forever... unless it hits the jackpot, in which case you might suddenly find yourself sitting on a huge profit. It's a question of risk and preference. Regarding your concern for false data. Google defines the Return on investment (TTM) (%) as: Trailing twelve month Income after taxes divided by the average (Total Long-Term Debt + Long-Term Liabilities + Shareholders Equity), expressed as a percentage. If you really think they have it wrong you could contact them, but it's probably correct for whatever past data or last annual financial results it's based on." A one year period of study - Stock A trades at $100, and doesn't increase in value, but has $10 in dividends over the period.  Stock B starts at $100, no dividend, and ends at $105. However you account for this, it would be incorrect to ignore stock A's 10% return over the period.  To flip to a real example, MoneyChimp shows the S&P return from Jan 1980 to Dec 2012 as +3264% yet, the index only rose from 107.94 to 1426.19 or +1221%.  The error expands with greater time and larger dividends involved, a good analysis won't ignore any dividends or splits. "Following comments to your question here, you posted a separate question about why SPY, SPX, and the options contract don't move perfectly together.  That's here Why don't SPY, SPX, and the e-mini s&p 500 track perfectly with each other? I provided an answer to that question and will build on it to answer what I think you're asking on this question.  Specifically, I explained what it means that these are ""all based on the S&P.""  Each is a different entity, and different market forces keep them aligned.  I think talking about ""technicals"" on options contracts is going to be too confusing since they are really a very different beast based on forward pricing models, so, for this question, I'll focus on only SPY and SPX. As in my other answer, it's only through specific market forces (the creation / redemption mechanism that I described in my other answer), that they track at all.  There's nothing automatic about this and it has nothing to do with some issuer of SPY actually holding stock in the companies that comprise the SPX index. (That's not to say that the company does or doesn't hold, just that this doesn't drive the prices.)  What ever technical signals you're tracking, will reflect all of the market forces at play.  For SPX (the index), that means some aggregate behavior of the component companies, computed in a ""mathematically pure"" way.  For SPY (the ETF), that means (a) the behavior of SPX and (b) the behavior of the ETF as it trades on the market, and (c) the action of the authorized participants.  These are simply different things. Which one is ""right""?  That depends on what you want to do.  In theory you might be able to do some analysis of technical signals on SPY and SPX and, for example, use that to make money on the way that they fail to track each other.  If you figure out how to do that, though, don't post it here.  Send it to me directly. :)" https://www.hussmanfunds.com/wmc/wmc171009m.png  &gt;The following charts will provide a sense of where the U.S. equity market currently stands. The first chart shows our margin-adjusted CAPE, which as noted above has a correlation of about -0.89 with actual subsequent market returns across U.S. market cycles since the 1920’s.  https://www.hussmanfunds.com/wmc/wmc171009.htm  It will turn, downside potential is historic. Dow Jones: http://en.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average  NASDAQ: http://en.wikipedia.org/wiki/NASDAQ-100 (scroll down) S&P Tricky. From what I can find, you need to be in Harvard Business School, a member of CRSP, or have access to Bloomberg's databases. S&P did have the info available years ago, but no longer that I can find. "There may well be several such graphs, I expect googling will turn them up; but the definition of risk is actually quite important here. My definition of risk might not be quite the same as yours, so the relative risk factors would be different. For example: in general, stocks are more risky than bonds.  But owning common shares in a blue-chip company might well be less risky than owning bonds from a company teetering on the edge of bankruptcy, and no single risk number can really capture that. Another example: while I can put all my money in short-term deposits, and it is pretty ""safe"", if it grows at 1% so that my investment portfolio cannot fund my retirement, then I have a risk that I will run out of money before I shuffle off this mortal coil.  How to capture that ""risk"" in a single number? So you will need to better define your parameters before you can prepare a visual aid. Good Luck" S&amp;P 500 are a relatively small portion of the entire American economy. Any number of things could cause them to increase in value at a greater rate than total output.   For example, distribution of total spending could shift from the public sector to the private sector if government tax receipts and outlays were decreased. It's also possible the economy is becoming more centralized towards tech and industrial giants, with an increasing market share in the hands of fewer, larger companies.