Last week, I discussed the “World’s Most Deceptive Chart” which explored the deception of “percentage” versus actual “point” losses which has a much greater effect on both the real, and psychological, damage which occurs during a bear market. To wit:

“The problem is you DIED long before ever achieving that 5% annualized long-term return.

Outside of your personal longevity issue, it’s the ‘math’ that is the primary problem.

The chart uses percentage returns which is extremely deceptive if you don’t examine the issue beyond a cursory glance. However, when reconstructed on a point gain/loss basis, the ugly truth is revealed.”

Of course, there are those that still don’t get the basic realities of math, loss and time and resort to other flawed theses to support an errant view. As shown by a comment received by a reader:

“This is true only for price return, not for total return (dividends included). Since 1926, there has never been a negative 20-year period or 15-year period. There have been only four negative 10-year periods, 1928-1938, 1929-1939, 1998-2008, and 1999-2009.

The same fatal flaw afflicts that last graph. It shows inflation-adjusted price return (dividends not included). Including dividends increases that Mar 2009-Feb 2017 gain from 167% to 218%. Does Mr. Roberts throw away all his dividend cheques? Does anybody?” – Sam Baird

Sorry, Sam, the data WAS total, real returns, but the larger point you missed was the importance of understanding the devastating difference between POINT gain or loss, versus a PERCENTAGE gain or loss.

However, the point Sam made was nonetheless important as it showed another commonly held belief that is a fallacy.

Which bring us to….

The World’s Second Most Deceptive Chart

The following chart is the same real, inflation-adjusted, total return of the S&P 500 index from last week but converted to the compounded growth of a $1000 investment.

Note: The red lines denote the number of years required to get back to even following a bear market.

“See, other than those couple of periods, just buying, holding and collecting dividends is the way to go. Right?”

Again, not so fast.

First, as shown in the chart below, There have currently been four, going on five, periods of low returns over a 20-year period. Importantly, there also HAS been a NEGATIVE 20-year real, total return, holding period average of -0.22%.