Copyright Forbes
In Sunday Bloody Sunday, U2’s Bono sang, “When fact is fiction and TV reality,” but these days we might argue it is better said, “When fact is ignored and fiction is peddled via social media!” A recent online advertisement caught my eye—it claimed that the S&P 500 delivered “Zero Returns for 12 Years,” complete with a line drawn from 2000 to 2011 and annotated price-to-earnings (P/E) ratios. The suggestion was simple and powerful: valuations were high in 2000, low in 2011, and therefore investors made no money. At first glance, such a chart seems persuasive. After all, P/E ratios do matter. When markets are expensive, future returns often moderate; when they are cheap, subsequent gains can be strong. But the ad’s framing is deeply misleading. It equates a change in valuation with a change in wealth, implying that price movement alone defines investment outcomes. That ignores the force that drives long-term equity returns—the growth of earnings and the reinvestment of dividends. Between mid-2000 and the end of 2011, the S&P 500’s price did indeed stagnate. The bursting of the tech bubble, the 9/11 attacks and the Great Financial Crisis created a turbulent decade. Yet the index’s earnings grew materially, and dividends continued to flow. MORE FOR YOU On a total-return basis, which includes reinvested income, investors did not experience “zero returns.” They earned roughly 20% to 25% over that span—disappointing, yes, but hardly zero. Leaving dividends out of the story is like evaluating a farm’s productivity without counting the harvest. The S&P 500 has historically derived more than a third of its long-term return from dividends and their reinvestment. Omitting them is like ignoring interest payments on bonds, meaning that a market that dwarfs equities in size would never attract any investors as buying a debt instrument at par that you only expect par when it matures would be a non-starter. Equally troubling is the insinuation that today’s market must be poised for the same fate because the trailing P/E now stands around 28. High multiples can indeed precede weaker returns, but valuation is only one piece of a complex puzzle. Earnings expectations for 2025 and 2026 have been rising, balance sheets remain healthy and inflation pressures are moderating. The environment today bears little resemblance to the speculative mania of 2000, when profitless companies traded at infinite multiples. I understand why such ads appear. They grab attention and steer investors toward a particular fund or strategy. But charts that oversimplify history do investors a disservice. They breed cynicism at precisely the time when patience and discipline are most needed. Value investors like us at The Prudent Speculator saw the so-called “lost decade” differently. While the S&P 500’s headline numbers looked bleak, cheap, dividend-paying stocks quietly compounded wealth. Those years were among the most fruitful for long-term value portfolios, proving once again that markets reward selectivity and valuation awareness—not market timing based on scary graphics. So, the next time someone tells you there were “zero returns,” remember to ask, "Does that include dividends? And, even more important today, those willing to look outside the richly priced S&P 500 will find a host of inexpensively priced stocks available for the choosing. After all, it is a market of stocks and not simply a stock market! Data can tell many stories, but truth in investing demands context. Markets fluctuate, valuations stretch and compress, yet over the long run, ownership of profitable businesses has remained one of the surest paths to building wealth…and buying them when they are cheap and selling when they are dear is a winning strategy!
