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I'm new to stocks, and trying to determine the historic behaviour of a particular ETF. However, I find that the stock price chart viewable on my investing site and the stock performance listed in the ETF report tell different stories.

I think the reason for this is because I'm misunderstanding the exact nature of the two charts.

For CBO:TSX, this is the stock price chart:

CBO:TSX stock price chart

And this is the performance chart from the analysis report:

CBO:TSX performance chart

For someone who doesn't understand how these charts work, this can be a little confusing. The stock price appears to go down, looking like the ETF has done worse and is worth less than it previously was. However, the $10,000 initial investment has clearly grown in the performance chart.

My intuition is that the stock price varies downward because:

  • Dividend payouts affect the stock price negatively
  • They have increased the number of shares available, reducing the stock price

My intuition is that the performance chart is high because:

  • The $10,000 initial investment assumes the dividends are reinvested

How correct is my line of thinking? If a person is looking to make an investment based on the historical behaviour, isn't the stock price chart almost useless when looking at the long run then? Should I mostly be looking at the performance chart for long term investments?

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Your thinking is largely correct. The performance chart shows the results of reivesting all dividends and capital gains distributions.

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  • Thanks for the answer! Are you able to elaborate a bit more on what you mean by 'largely' correct? What sections am I misunderstanding? – FCQPerson Apr 2 '15 at 16:59
  • The fund price represents the price of the underlying holdings. In a bond fund that has much more to do with interest rate changes than with paid out dividends. And, you left out capital gains distributions. – ScottMcP-MVP Apr 2 '15 at 17:07
  • Ok, that makes sense. So to be clear, similar reasoning would apply to non-bond price charts as well. Is that correct? – FCQPerson Apr 2 '15 at 17:14
  • Yes, the meaning of the price chart and the performance chart are the same for both stock funds and bond funds. – ScottMcP-MVP Apr 2 '15 at 19:47

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