An asset’s long-term performance can present a mixed picture, with the returns markedly different depending on the time period selected for the assessment.
Take the Cisco stock, for example.
Excluding dividends, the tech counter has given investors an average 9.5 percent annual return over the past two decades, which is pretty good.
However, if we were to take into account only the past 16 years, the average return drastically drops to minus 4 percent.
This is largely due to steep climb in the share price two years before 2000 and a huge drop after the internet bubble burst.
Gold is another good example of the different returns.
From 1970 to date, average annual return on gold investments is about 8.2 percent. But from 1980 to now, the average yearly return drops to only 1.8 percent. That is because in the latter case, investors would have missed the 17 times jump of gold prices between 1970 and 1980.
What’s the lesson for investors in all this?
Well, it is that they should be vigilant against vendors of financial products and scrutinize more closely the claims on historical returns on any asset.
Even though the figures may be correct, a salesman may have cherry-picked his data in order to arrive at a more favorable outcome and make the product appear hotter than it really is.
Adapted from an article that appeared in the Hong Kong Economic Journal on Aug. 11.
Translation by Raymond Tsoi with additional reporting
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