[2020] A little stock market sense

[PigsDad]

True for index charts, the one I quoted said "total return"


https://www.investopedia.com/ask/answers/040915/does-sp-500-index-include-dividends.asp

Yes, I know. I was quoting and referring to @Ralph Sir Edward's post where he was showing an index chart from 2000 to 2009.

Kurt

 

[Ralph Sir Edward]

The problem with index charts are that they do not include dividends, and therefore do not show the total return.

Index charts with out the dividends included are almost useless, since you can have a index that is flat over 20 years but the total return can actually be quite good.

You state that the net loss from 2000 to 2009 was 50%, but plug in numbers in a S&P 500 total return calculator (such as this one), the real loss was only about 30%. Big difference!

Another example of how dividends make a huge difference. Take an investment of $10K starting in 2000 until today. Without dividends (what an index chart would show you) that will grow to $36,700, or a 267% return, but with dividends it would grow to $57,250, or a 472% return. Put it another way, 43% of the returns of that investment is from dividend reinvestment.

Kurt

Yes -30% is better than -50%. But both are still losses over a 10 year period. During that period the dividend yield varied from 1.18% to a little over 3% (for a very short period). The current yield is 1.56%. In the end, if you are going to live off of your investments, you are nearly completely dependent on capital gains. IF they occur. . . .they didn't from 2000-2009

 

[PigsDad]

Yes -30% is better than -50%. But both are still losses over a 10 year period. During that period the dividend yield varied from 1.18% to a little over 3% (for a very short period). The current yield is 1.56%. In the end, if you are going to live off of your investments, you are nearly completely dependent on capital gains. IF they occur. . . .they didn't from 2000-2009

Sure, cherry pick two dates that coincide with the top of the dot com bubble and the bottom of the greatest stock market crash since 1929, then yes, you will show a loss. Give me almost any other two dates 9 years apart and the story is much, much different. So I really don't know what point you are trying to make with your post. That the stock market can be volatile? I would hope everyone knows that.

My point in responding to your original post is that you can't just look at index charts and make big claims like you would have lost 50% without taking into consideration the total returns which include dividend reinvestments. It makes a huge difference.

Plus, if you are in the situation of having to live off the interest/dividend payments of your nest egg, well then duh -- all in on the stock market is a stupid place to be. And if you had a financial advisor recommend that, they should be fired. But if we are talking about great investment strategies for the long term, not many can beat the returns when investing in the S&P 500 index. Even with that bad 9-year period that started this century, anyone who has consistently put their money in that index has done very, very well.

Kurt

 

[Ralph Sir Edward]

Sure, cherry pick two dates that coincide with the top of the dot com bubble and the bottom of the greatest stock market crash since 1929, then yes, you will show a loss. Give me almost any other two dates 9 years apart and the story is much, much different. So I really don't know what point you are trying to make with your post. That the stock market can be volatile? I would hope everyone knows that.

My point in responding to your original post is that you can't just look at index charts and make big claims like you would have lost 50% without taking into consideration the total returns which include dividend reinvestments. It makes a huge difference.

Plus, if you are in the situation of having to live off the interest/dividend payments of your nest egg, well then duh -- all in on the stock market is a stupid place to be. And if you had a financial advisor recommend that, they should be fired. But if we are talking about great investment strategies for the long term, not many can beat the returns when investing in the S&P 500 index. Even with that bad 9-year period that started this century, anyone who has consistently put their money in that index has done very, very well.

Kurt

Funny how I get accused of cherry picking when Brett's chart did exactly the same thing. only from the start of a bull market.

What do you do with your investments? In the end, either you use the results for your personal benefit, or you are just playing a game, with somebody else getting the benefits after you are dead. Shrug. My goal was to give myself a comfortable cash flow in retirement, either by selling assets, or by receiving rentier returns on my assets.

 

[easyrider]

I think Harry Dent is on to something. He isn't the only one that thinks the markets are going to crash this year. He predicts a 98% crash.

Bill

 

[letsgobobby]

I think Harry Dent is on something.

Bill

fixed it for you.

Harry Dent is the epitome of a permabear. He has been openly predicting a Depression for almost two decades, and his investing track record even before severely underperformed his benchmarks.

Why would you take anything he says seriously?

 

[DrQ]

Harry Dent is the epitome of a permabear. He has been openly predicting a Depression for almost two decades, and his investing track record even before severely underperformed his benchmarks.

A broken (analog) clock is correct twice a day.

 

[easyrider]

Why would you take anything he says seriously?

He brought up some good points recently. Basically, he thinks everything is in a bubble.

Supporting factors are job losses due to businesses cutting back or going out of business, the Petrol Dollar is now circumvented, US Treasuries are being sold off by foreign countries while the US is experiencing a liquidity problem, commercial real estate defaults are up and likely to increase, home mortgages default rate is at about 4% and expected to increase, car loan defaults are up 20% from last year, inflation and war.

Bill

https://markets.businessinsider.com...s-2024-6?utm_medium=ingest&utm_source=markets

 

[VacationForever]

Trying to time the market is fool's errand.

 

[Ralph Sir Edward]

Trying to time the market is fool's errand.

It depends on scale. On a short scale, it is. On a long scale, it isn't. Save your money in good times, and buy in a recession. Then hold.

 

[ScoopKona]

Harry Dent is the epitome of a permabear.

He's also the epitome of why the von Mises "institute" is such a societal problem. Let's face it, the Austrian School is a cult, and it attracts kooks like a magnet.

 

[VacationForever]

It depends on scale. On a short scale, it is. On a long scale, it isn't. Save your money in good times, and buy in a recession. Then hold.

So if you keep your money uninvested and wait for a recession which may not come for another 10 years, you have just timed the market and missed out on gains for the 10 years. In other words, you are trying to time the market and it's a fool's errand.

 

[Brett]

Yes -30% is better than -50%. But both are still losses over a 10 year period. During that period the dividend yield varied from 1.18% to a little over 3% (for a very short period). The current yield is 1.56%. In the end, if you are going to live off of your investments, you are nearly completely dependent on capital gains. IF they occur. . . .they didn't from 2000-2009

Or follow another stock index or another time period. The S&P 500 are the largest US companies but smaller companies and other country's stock prices did OK during that time period. The point is stocks are for the long term, no one can predict when the "good times" and bad times are coming or going


.

 

[letsgobobby]

He brought up some good points recently. Basically, he thinks everything is in a bubble.

Supporting factors are job losses due to businesses cutting back or going out of business, the Petrol Dollar is now circumvented, US Treasuries are being sold off by foreign countries while the US is experiencing a liquidity problem, commercial real estate defaults are up and likely to increase, home mortgages default rate is at about 4% and expected to increase, car loan defaults are up 20% from last year, inflation and war.

Bill

https://markets.businessinsider.com...s-2024-6?utm_medium=ingest&utm_source=markets

markets go up and markets go down. Why do you think you can predict this with any certainty? 98% of active mutual funds under perform their benchmarks over a ten year period of time. I'll take my chances with passive indexing every day of the week and twice on Sunday.

 

[TolmiePeak]

markets go up and markets go down. Why do you think you can predict this with any certainty? 98% of active mutual funds under perform their benchmarks over a ten year period of time. I'll take my chances with passive indexing every day of the week and twice on Sunday.

Ditto.

 

[easyrider]

Why do you think you can predict this with any certainty?

I didn't say I can even though the writing on the wall spells lots of bubbles and lots of sectors in recession. The Buffet indicator is high at over 200%. Warren Buffet says anything over 120% means the market is overvalued. Some say the Hindenburg Omen flashed red yesterday which is another bad indicator. High inflation often precedes a market crash. Even though the official bs inflation rate is about 3.4% the price of goods have increased over 20%.

Bill

 

[letsgobobby]

i'm not sure you understand

you could be right

but you could be wrong

hence: what is actionable about your visions?

in order to answer that you'd have to know the positive predictive value of "The Hindenberg Omen" or "high inflation". First, define them, precisely. Second, when the indicator appears, how often does it correctly predict a stock market decline, how often does it falsely predict a decline, when does it predict a decline, how long will the decline be, how deep will the decline be, when will the decline be over, when should you get back in?

Without all of this information and much more, empty claims about "high inflation means stock prices go down" is meaningless.

I've invested through three rough stock market declines of 30-50%+. The markets have recovered each time and gone on to make new highs. I started investing when the Dow was 2000. It's now 40,000.

The Permabears have been wrong for decades. I'm sure the market will decline by 50% at some time again but I have lived through that three times and the market is still 20x higher than it was when I was young.

 

[ScoopKona]

The Permabears have been wrong for decades. I'm sure the market will decline by 50% at some time again but I have lived through that three times and the market is still 20x higher than it was when I was young.

This entire thread reminds me of the George Patton quote: "A good plan, violently executed now is better than a perfect plan next week."

 

[easyrider]

i'm not sure you understand

The number one thing to understand about stock market investments is only 10% of investors actually make any money meaning 90% of investors either take losses or make nothing after inflation is factored in. The main reason being is that diy stock market investing would be similar to diy surgery, imo.

Bill

 

[Brett]

The number one thing to understand about stock market investments is only 10% of investors actually make any money meaning 90% of investors either take losses or make nothing after inflation is factored in. The main reason being is that diy stock market investing would be similar to diy surgery, imo.

Bill

Bill, .... Bill, Bill .......

Most "investing" is just staying in stock mutual funds long-term, whether tax-deferred in IRA, 401-K, "TSP", etc. or a brokerage account

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[TolmiePeak]

It depends on scale. On a short scale, it is. On a long scale, it isn't. Save your money in good times, and buy in a recession. Then hold.

That is still market timing.

 

[Sugarcubesea]

Oh by the way if you have not heard this. Those buy and holders I mentioned who held on too long in 2008 and did not rebalance? The horror of 2008 may not be over for them. They wake up to people coming to their homes to sell it.

Why? They have zombie mtgs. They were told their mortgages were forgiven back then but never were. Never got it in writing.

I sold none of my stock during the 2008 crash and I'm doing just fine, I will retire in a few years and will do just fine...

 

[Ralph Sir Edward]

That is still market timing.

Of course it is. If you look back on index charts to 1900 (124 years), you will see down markets, and usually bear markets, with every recession/depression. The closest thing to a failure was the recessions of the 1950's (1950, 1955, and 1958) when a massive bull market was interrupted by modest sell-offs during the recessions. However if you compare the sell-off to the rate the bull market was rising in the 1950's, that differential would constitute bear markets.

Tops are much harder to define. Hence my hold cash until a recession and buy quality during the recession; and then hold the stocks.

Bluntly, when I compare the historical record to the mantra "you can't time the market" - I back the historical record (and my personal experience).

 

[Sugarcubesea]

Maybe you should sell your "SIMPLE" stock market timing system to the not-so-smart mutual fund managers


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https://www.nytimes.com/2022/12/02/business/stock-market-index-funds.html

@Brett , I so agree, I have been in Index Funds since I started investing both in my 401K and my Roth IRA and my index funds have done fine by me

 

[easyrider]

Bill, .... Bill, Bill .......

Most "investing" is just staying in stock mutual funds long-term, whether tax-deferred in IRA, 401-K, "TSP", etc. or a brokerage account

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Your probably right but for us it was aggravating to see gains lost in the down turns.

Bill