And what they teach us
We read these last week at the Irrelevant Investor and knew we had to share them with you. The lesson we gathered is that investing successfully, while simple, is very difficult…and the difficulty is mostly psychological. Read on, and let us know if you agree.
John, Bill, Mark & Melanie
- Since 1916, the Dow has made new all-time highs less than 5% of all days, but over that time it’s up 25,568%.
95% of the time you’re underwater. The less you look the better off you’ll be.
- The Dow has compounded at less than 3 basis points a day since 1970. Since then it’s up more than 3,000%.
Compounding really is magic.
- The Dow has only been positive 52% of all days. The average daily return is 0.73% when it’s up and -0.76% when it’s down.
- The Dow has spent more time 40% or more below the highs than within 2% of the highs (20.6% of days vs. 18.4% of days)
No pain no gain.
- The Dow gained 38 points in the 1970s
- Why am I using the Dow instead of the S&P 500? They’re effectively the same thing. The rolling one-year correlation since 1970 is .95.
Stop wasting your time on this.
- At the low in 2009, U.S. stocks were back to where they were in 1996.
Stocks for the long-run. The very long-run. Usually. Sometimes.
- At the low in 2009, Japanese stocks were back to where they were in 1980.
- U.S. one-month treasury bills went 68 years with a negative real return.
What’s safe in the short-run can be risky in the long-run.
- At the bottom in 2009, long-term U.S. government bonds outperformed the stock market over the previous 40 years
Stocks generally outperform bonds, but there are no guarantees.
- Gold and the Dow were both 800 in 1980. Today Gold is $1,300/ounce, the Dow is near 26k.
Cash flows > commodities.
- Over the last twenty years, Gold is up 340%. Stocks are up 208%, with dividends.
You can support any argument by changing the start and end dates.
- Since 1980, Gold is up 153%. Inflation is up 230%.
- CTAs (Commodity Trading Advisors) gained 14% in 2008 when stocks lost 37%. Since 2009 they’re up 2.5%. Stocks are up 282%.
Non-correlation cuts both ways.
- If you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year
When you were born > almost everything else.
- The Dow lost 17% in 1929, 34% in 1930, 53% in 1931 and 23% in 1932.
- Warren Buffett is the greatest investor of all-time. In the 20 months leading up to the dotcom peak, Berkshire Hathaway lost 45% of its value. The NASDAQ 100 gained 225% over the same time.
No pain no premium.
- Only 47.7% of stocks generated a life-time return that match one-month treasury bills.
One reason why so many mutual funds fail to beat the market is because so many stocks fail to beat the market.
- Dow earnings were cut in half in 1908. The index gained 46%.
The stock market ≠ the economy.
- In 1949 the stock market was trading at 6.8x earnings and had a 7.5% dividend yield. 50 years later it reached a high of 30x earnings and carried just a 1% dividend yield.
You can calculate everything yet still not know how investors are going to feel