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At 5:32 PM -0700 7/25/99, Mark Johnson wrote:
>I tested "Buy and Hold the S&P 500 Futures" .
I recently generated a similar study that I found interesting. It is the Dow Jones Industrial Average adjusted for inflation using the Consumer Price Index.
We all see these charts of the DJIA that go uniformly up and to the right over decades. The clear message is to "just buy and hold for the long run and you will do fine". This strategy doesn't look all that good if you adjust for inflation. Too bad I cannot post the chart on this list but I can share the conclusions:
> If you were invested at the peak in 1928, you lost 75% of your buying
power in the next bear market and it only took you 27 years to break
even again.
> If you were invested at the peak in 1965, you lost 69% of your buying
power in the next bear market and it only took you 29 years to break
even again.
> The run-up from 1948 to the 1965 peak was by a factor of 4.2 and took
17 years. (8.8% per year)
> The run-up from 1981 to now has been by a factor of 5.7 and took
17 years. (10.8% per year)
> Your buying power at the 1981 bottom was about the same as it was in
1917 so the Buy/Hold strategy got you nowhere over those 64 years.
> Your buying power over the complete 84 years of Buy/Hold increased at
the rate of just 2.4% per year.
> On this scale the 26% "crash" of 1987 is just a blip.
Since I may need my buying power over the next 25 to 30 years, I think I prefer to be a market timer and be out of the market during downturns and high risk periods. <g>
To be fair, I probably should add in the dividends on the DJIA. Perhaps I can find that data.
Bob Fulks
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