It’s the time of year that we’re looking at capital gains and losses. We may look at our report and see big red or green numbers and be happy or disappointed. But we can’t let that statement fool us about our portfolio. It’s only telling us part of the story. Here is an example:
Let’s say that four years ago we decided to buy a couple of real estate stocks, Maui Land and Pineapple (I’m not making this one up) and CYS Investments (I do not own either of these companies, I just selected them as an illustration). Now we look at the capital gains and Maui Land is up a not spectacular 14%, but it’s a gain. On the other hand CYS is down 35%. Obviously CYS was a big loser. But was it? Capital gains statements don’t take into account dividends. And over those four years, CYS paid out a total of 60% in dividends versus the purchase price. Maui Land doesn’t pay a dividend. So it turns out the total return for CYS is a positive 29%, more than double the return of Maui Land.
This is not to say that dividend stocks are somehow better than ones that don’t pay a dividend. But it’s a cautionary note. We need to understand the whole picture before deciding which stocks are winners or losers. Our capital gains statement only tells part of the story.