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An Interesting "Fact"

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Apr 24, 2008 5:19 pm

I was recently listening to an investment podcast and heard that if you invested $10,000 in the DJIA on May 1, 1950, the account would only increase to $10,341 by December 31, 2006.  Can someone explain this to me?  The DJIA closed at around 270 on 5/1/50 and today its at 12,891.  Supposedly this stat was from the 2008 Stock Market Almanac published by Wiley & Sons.

Apr 24, 2008 5:48 pm

I realize that and normally I wouldn’t bother, but it was quoted from this almanac I never heard of, so now I need to know if its BS or are their other factors involved.

Apr 24, 2008 6:19 pm

Something is wrong with your facts.  The Dow probably grew at about 6% (not including dividends).  Even at just 3% growth, it would have grown to around $56,000.  Are you sure it wasn’t $100 or $1,000?  Were there withdrawals?  Something just has to be wrong.  Otherwise, it is statistically inaccurate.  It’s possible taht someone didn’t account for mergers/splits/acquisitions/removals from the Dow/additions to the Dow, etc.  But that seems highly unlikely.  I think you’re just missing a fact somewhere.

Apr 24, 2008 6:48 pm

I realize that and normally I wouldn’t bother, but it was quoted from this almanac I never heard of, so now I need to know if its BS or are their other factors involved.

  I can create an investment podcast if you'd like to attend.  I will be quoting my almanac that I intend to write an hour before my podcast begins.  Looking forward to all those that will attend.   Disclosure:  Everything I say should be taken as fact.
Apr 24, 2008 7:21 pm

Here’s a piece of advice.  Unless it comes from someplace like Goldman Sachs, Ibbotson, or some other well know financial institution, don’t put much stock in those “facts”.  The old saying “figures never lie and liars never figure” is true.  If it sounds wrong, it probably is.

Apr 24, 2008 7:40 pm

Using Investment View software, DJ Industrial (not including dividends) has averaged 7.17% since May 1950.

Apr 25, 2008 2:20 pm

My guess is that he is trying to refer to the Stock Trader’s Almanac, not the Stock Market Almanac.  It is published by Wiley & Sons.  There is a wealth of info in the almanac, although I think some of it is more misleading than helpful.  On a quick skim through the book this morning, I didn’t see what he would have been looking at, although that doesn’t mean that it isn’t in there somewhere.  If it is though, I would suspect either a misprint or a bad calculation or interpretation error by the reader (most likely an accidental/intentional error by the podcaster). 

  I do see that on 4/30/50 the Dow was at 214.33, and at 12,463.15 on 12/31/2006.  At the risk of this getting political, I am reminded of an Al Franken joke several years ago about Rush Limbaugh's fact checker -- easiest job in America.  I think that fact checker has since left the political field and went to work for your podcaster.
Apr 25, 2008 6:02 pm

Thank EDJ.  I sent the guy an email so that he could explain himself.  I have to at least get him to admit he made a mistake.

Apr 25, 2008 11:41 pm

I wonder if he was using current dollars and adjusting for inflation. Even then he would be wrong.