Do stocks really go up over the long run?

[Pabst]

The easiest way to measure historical market performance is by relying on an index average even though they are bit flawed by survivorship bias. The idea is that you merely adjust your hypothetical portfolio based on index additions and subtractions.

That being said, until the last decade and a half stocks were a HORRIBLE investment for the period of the prior 70 years. To wit. In 1929 the Dow traded 380. It wasn't until 1955 that the pre crash high was broken. By the lows of 1974 the market was in the 500's. That means if you'd bought shitty in 1929 and puked on the lows in 1974 you made about 1% a year for your trouble. Likewise if you'd bought mid range in the mid 1960's (800 or so) you still didn't have a profit until post 1983.

The Nikkei made a high of 38,000 in 1989. Don't look for that one to be taken out anytime soon. NO investment is a sure thing because of past performance. And that goes for real estate, gold, cash, ect. That's not to say any of them won't be FABULOUS but it isn't BECAUSE of what they did before.

 

[peilthetraveler]

Quote from 007Arb:

Yes, stocks, as in a diversified basket of stocks definitely have gone up in the long run. I suggest you purchase the latest edition of Jeremy Siegel's Stocks for the Long Run. If that doesn't convince you, simply look at the *real* money, real time performance of some of the oldest mutual funds. For instance, had you invested $10,000 in the Pioneer Fund on March 1, 1928 and didn't invest another penny, your investment today would be worth over $90,000,000 (that's ninety million+)

Hmmm interesting....but how many funds went belly up the next year during the crash of 29?

 

[RunTrade]

Quote from 007Arb:

For instance, had you invested $10,000 in the Pioneer Fund on March 1, 1928 and didn't invest another penny, your investment today would be worth over $90,000,000 (that's ninety million+)

I just have to say something about this that many people seem to forget...the ol' invest this little amount then and its worth this huge amount now.

You need to realize that $10,000 in 1928 may be equivalent in buying power to $1 or 2 million dollars today...(not sure specifically because i do not want to look up the inflation over the years)

Just doesn't make sense trying to prove a point with that kind of example.

 

[steve46]

Take a look at the inflation adjusted charts for that time period. You will have the information you need to make an informed comment.

Good luck
Steve

Edit:

There are many sources, but you may simply google for "inflation adjusted stock charts" and eventually find a chart or two.

 

[RunTrade]

Quote from steve46:

Take a look at the inflation adjusted charts for that time period. You will have the information you need to make an informed comment.

Good luck
Steve

Edit:

There are many sources, but you may simply google for "inflation adjusted stock charts" and eventually find a chart or two.

my point was that 10k is now is not nearly the same as 10k more than 75 years ago. I didnt think (and still dont) that i needed exact numbers to make that an "informed comment".

Edit:

I appreciate your kindness in pointing me towards the many places to find these chart; however, I am aware of how to access them and would like to use my time otherwise

Good Trading,

- R.T.

 

[Pabst]

Quote from RunTrade:

my point was that 10k is now is not nearly the same as 10k more than 75 years ago. I didnt think (and still dont) that i needed exact numbers to make that an "informed comment".

Edit:

I appreciate your kindness in pointing me towards the many places to find these chart; however, I am aware of how to access them and would like to use my time otherwise

Good Trading,

- R.T.

10k as analogous to what asset class over the past 75 years? In terms of consumer purchasing power it's the equivalent of perhaps 150k today. In terms of Beverly Hills real estate it may be 20 million today. 10k in Dow stocks on the 1929 highs would be 300k, but 10k on the 1932 lows would be 2million. Timing and choice of asset is everything.

 

[TRADERguy]

Unless you have an investment plan that calls for buying an equal weight of every stock on the planet, you should not waste your time thinking about what the average stock does. You either invest in something that represents one or more stock indices or you invest in a basket of stock(s). If you invest in one or more indices you should be interested in the behavior of those indices. If you are investing in a basket of stocks you should be interested in the performance of those stock(s). If your asking the question because you don't know what criteria to use to get out of a stock, I would strongly recommend investing in Government backed securities and certificates of deposits from major banks until you figure it out. Until you have answered this and a bunch of other questions I would stay away from actively trading anything.

Cheers,

TRADERguy

 

[Pekelo]

Quote from steve46:



There are many sources, but you may simply google for "inflation adjusted stock charts"

For all those with ADD, that chart was provided in the very first post of this thread.

As an answer to Traderguy, I asked the question as a theoretical one or a mythbuster one, because I think there are just way too many things that we take for granted without ever questioning them.

I completely agree with Pabst, stocks were horrible investment devices for very long periods of time. It still looks that there is a slight upward bias over the long run. Another interesting question would be :

Could it be that stocks only go higher because there are more money coming into the markets over the years, thus it is not the performance of the businesses, but the more buying power chasing the relative smaller number of stocks. (the incoming money grows faster than the number of stocks)??

 

[originalskunk]

The problem with "exact numbers" is that such a thing does not exist -- it depends who you ask. According the CPI inflation calulator here

http://data.bls.gov/cgi-bin/cpicalc.pl

$10000 in 1928 has the same buying power as $116491.23 in 2005. And if you believe the official gubmint numbers then...

 

[nononsense]

Quote from Pekelo:

I am undecided on the question, but I have serious doubt about the generally accepted "stocks go up over the long run".
(Of course depends on what we call long run.)
...

That's an interesting question.
First, I think that it is very difficult to say anything over the long run. Big names go broke over time. Look at the forgotten "Canal Companies". New technologies rise, others disappear. Can the DJI have any longterm valuation significance in view of this?

What could make sense is to look at basic commodities and also real estate. I recall seeing some studies as to rents paid over centuries for certain historic places as compared to the price of wheat. Remarkably, although fluctuations occur, real or artifacts proper to the method used, the ratio remains roughly constant. If I am not mistaken, some data about the valuation(price?) of wheat since antiquity also exists. I forgot compared to what?