TokyoWart wrote: ↑Tue Jan 04, 2022 11:37 am
I don’t think there is a reliable way to get the good of market returns without the bad of volatility and the occasional market crash.
Exactly this.
Also the reason I posted the graph and pointed out the importance of including dividend accumulations, is because in reality the market crash periods are often not as bad as they are made out to be. The mistake is considering the instantaneous value of your portfolio at the last peak as your true wealth. It's not. The instantaneous value of a portfolio is just a yardstick. It could drop 50% over the next few months, or rise 30% over the next year.
However, as long as you don't panic and sell everything in a dip, that doesn't matter. You'll be drawing down slowly over years in both times of high and low markets.
And don't calculate instantaneous losses compared to the last market peak value. Again that doesn't matter. Nobody can expect to realize the perfect strategy and sell everything at the peak. It is just a paper number.
Benjamin Graham, The Intelligent Investor - Revised Edition (Harper & Row), p. 192-193
Chapter 7
(As of writing - 1971)
Between 1897 and 1949 there were ten complete market cycles, running from bear-market low to bull-market high and back to bear-market low. Six of these took no longer than four years, four ran for six or seven years, and one—the famous “new-era” cycle of 1921–1932—lasted eleven years. The percentage of advance from the lows to highs ranged from 44% to 500%, with most between about 50% and 100%. The percentage of subsequent declines ranged from 24% to 89%, with most found between 40% and 50%.
(It should be remembered that a decline of 50% fully offsets a preceding advance of 100%.)
Nearly all the bull markets had a number of well-defined characteristics in common, such as
(1) a historically high price level,
(2) high price/earnings ratios,
(3) low dividend yields as against bond yields,
(4) much speculation on margin, and
(5) many offerings of new common-stock issues of poor quality.
Thus to the student of stock-market history it appeared that the intelligent investor should have been able to identify the recurrent bear and bull markets, to buy in the former and sell in the latter, and to do so for the most part at reasonably short intervals of time. Various methods were developed for determining buying and selling levels of the general market, based on either value factors or percentage movements of prices or both.
But we must point out that even prior to the unprecedented bull market that began in 1949, there were sufficient variations in the successive market cycles to complicate and sometimes frustrate the desirable process of buying low and selling high. The most notable of these departures, of course, was the great bull market of the late 1920s, which threw all calculations badly out of gear. *1
Even in 1949, therefore, it was by no means a certainty that the investor could base his financial policies and procedures mainly on the endeavor to buy at low levels in bear markets and to sell out at high levels in bull markets.
It turned out, in the sequel, that the opposite was true. The market’s behavior in the past 20 years (to 1972) has not followed the former
pattern, nor obeyed what once were well-established danger signals, nor permitted its successful exploitation by applying old rules for buying low and selling high. Whether the old, fairly regular bull-and-bear-market pattern will eventually return we do not know. But it seems unrealistic to us for the investor to endeavor to base his present policy on the classic formula—i.e., to wait for demonstrable bear-market levels before buying any common stocks. Our recommended policy has, however, made provision for changes in the proportion of common stocks to bonds in the portfolio, if the investor chooses to do so, according as the level of stock prices appears less or more attractive by value standards.*2
Benjamin Graham, The Intelligent Investor - Revised Edition (Harper & Row), pp. 193,194.
Foot Notes by Jason Zweig
(added 2003)
*1 Without bear markets to take stock prices back down, anyone waiting to “buy low” will feel completely left behind—and, all too often, will end up abandoning any former caution and jumping in with both feet. That’s why Graham’s message about the importance of emotional discipline is so important. From October 1990 through January 2000, the Dow Jones Industrial Average marched relentlessly upward, never losing more than 20% and suffering a loss of 10% or more only three times. The total gain (not counting dividends): 395.7%. According to Crandall, Pierce & Co., this was the second-longest uninterrupted bull market of the past century; only the 1949–1961 boom lasted longer. The longer a bull market lasts, the more severely investors will be afflicted with amnesia; after five years or so, many people no longer believe that bear markets are even possible. All those who forget are doomed to be reminded; and, in the stock market, recovered memories are always unpleasant.
*2 On January 7, 1973, the New York Times featured an interview with one of the nation’s top financial forecasters, who urged investors to buy stocks without hesitation: “It’s very rare that you can be as unqualifiedly bullish as you can now.” That forecaster was named Alan Greenspan, and it’s very rare that anyone has ever been so unqualifiedly wrong as the future Federal Reserve chairman was that day: 1973 and 1974 turned out to be the worst years for economic growth and the stock market since the Great Depression.
The New York Times, January 7, 1973, special “Economic Survey” section, pp. 2, 19, 44.
From the height of 119 at the end of Dec 1973, the S&P500 fell to 62 in Aug 1974... -47.9% ; back to levels previously seen in 1962...
Benjamin Graham, The Intelligent Investor - Revised Edition (Harper & Row), pp. 196,197.
A serious investor is not likely to believe that the day-to-day or even month-to-month fluctuations of the stock market make him richer or poorer. But what about the longer-term and wider changes? Here practical questions present themselves, and the psychological problems are likely to grow complicated. A substantial rise in the market is at once a legitimate reason for satisfaction and a cause for prudent concern, but it may also bring a strong temptation toward imprudent action. Your shares have advanced, good!
You are richer than you were, good! But has the price risen too high, and should you think of selling? Or should you kick yourself for
not having bought more shares when the level was lower? Or—worst thought of all—should you now give way to the bull-market atmosphere, become infected with the enthusiasm, the overconfidence and the greed of the great public (of which, after all, you are
a part), and make larger and dangerous commitments? Presented thus in print, the answer to the last question is a self-evident no, but
even the intelligent investor is likely to need considerable will power to keep from following the crowd.
Benjamin Graham, The Intelligent Investor - Revised Edition (Harper & Row), p. 181.
A great company is not a great investment if you pay too much for the stock.
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This Guide to Japanese Taxes, English and Japanese Tai-Yaku 対訳, is now a little dated:
Tkydon wrote: ↑Tue Jan 04, 2022 11:09 am
another way to look at it
If you invested a lump sum (or had an existing lump sum invested) in the ^SP500TR, and you invested it
2 Jan 2000 = 1983
2 Aug 2007 = 2381
Then your annualized interest rate would have been
(2381 / 1983)^(1/7.5) = 2.46% Annualized
But if you had taken the money out of the market crazy over-priced market, waited 2.5 years...
1 Sept 2002 = 1140
2 Aug 2007 = 2381
(2381 / 1140)^(1/7.5) = 10.3% Annualized over the full 7.5 years (including the 0% return 2.5 years)
2 Jan 2000 = 1983
2 Jan 2022 = 9990
(9990 / 1983)^(1/22) = 7.62% Annualized
1 Sept 2002 = 1140
2 Jan 2022 = 9990
(9990 / 1140)^(1/22) = 10.37% Annualized over the full 22 years (including the 0% return 2.5 years)
You have to have dry powder when the opportunity comes along.
Haven't been on this Forum in a while, but I see the ridiculosity in arguing for market timing with the benefit of perfect hindsight in the numbers is still being bandied about. What a farce.
To paraphrase the argument above with a World Cup analogy: "...if only I had placed a bet on Argentina winning the World Cup, right after they lost to Saudi Arabia, because Spain did the same thing two World Cups ago (losing the first game and going on to win), and the odds on Argetina would've been great immediately after that loss! Look at how much money I calculated I could've made! Well, I missed that chance, but two World Cups from now, if a powerhouse loses their first game to a minnow, I'm going all in!! Man, am I ever smart! I'll just pat myself on the back now."
I'll just pat myself on the back now."