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Understood. Thank you. I contribute some degree of insight to Real Traders
from time to time as I find that it helps me to clarify my own thinking
about the many aspects of trading.
I never stated that calculating the rate of return/change was wrong or
unimportant. I find the ratios that I sent to the forum useful in looking
at the whole of the history of the market the same as any average or
percentage would be. As stated in most years there would be a less then 1%
increase. Looking at a year like 1997 with a .22 percent increase in one
year is quite enlightening. Those are straight percentages and aren't
adjusted in any way. Over the last year I posted several charts and other
analysis that suggested that in my mind we were approaching an extreme and
I said that the market was likely to have a large pull back sometime before
the year 2000 based on that behavior. You can judge for yourself what has
happened.
I thank those that send me encouragement for the insight that I give. Even
if I try to be objective my insights will be colored by my understanding
and my experience.
Brent
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> From: Richard <rjb@xxxxxxxxxxxxxxxxxxx>
> To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
> Subject: Re: FYI the Dow in 1896 hit a low of 28.
> Date: Friday, September 11, 1998 7:31 AM
>
> No personal attack intended.
>
> However, while some things such as a view of a market, etc., fall in the
> category of being an opinion, some things fall in the category of being
> either true or untrue. And the rate of return of the DJIA over 102 years
is
> one of those. There is a rate of return that is "true" and all others are
> "untrue" (leaving aside for the moment this issue of inflation)
>
> You see, by your analysis, let's say I buy a stock today for $100 and
sell
> it five years from now for $200, I make $100 over 5 years or $20 per
year.
> $20 divided by $200 is 10 percent for a 10 percent annual rate of return.
> But that's clearly not the return I earned which is why I made the crack
> about being glad you didn't work at my bank (which I admit by email
> etiquette probably should have been accompanied by a <g>)
>
> Look at it another way. If you invested $28 in 1896 at a guaranteed 1%
> annual rate of return (say buying a bond), you'd have a grand total in
1998
> of about $75 even if you compound it once per year (a 28 cent return the
> first year, a 28.8 cent return the second year, etc). If I put it in the
> stock market I'd have over $9000. So clearly a return of 1% is a severe
> underestimate of the return (which I believe someone calculated at 5.9%.
I
> didn't do the calculation but it sounds right)
>
> NOW...as to the issue of adjusting the return for inflation, that's
> something else entirely. THAT falls into the venue of opinion...where
> people can disagree. Clearly the prices of some things are much higher
than
> they were in 1896. But some things such as technology, travel, routine
> medicine, etc. are much cheaper in real terms now than in 1896. In fact
> some products are infinitely cheaper now simply because they didn't exist
> at all in 1896.
>
> But in my view (once again in the realm of opinion), I use a holistic
view
> of the situation by asking myself a question....Would I rather have $9000
> with the prices and the availability of goods being what it is now...or
> would I rather have $75 with the prices and the availability of goods
being
> the same as that of 1896.
>
> I personally would take the $9000...mainly because I wouldn't want to
give
> up such things as cable TV and these interesting email discussions...but
I
> recognize there are people who would give up all the technology and take
> the $75 with the ability to buy a half acre in the San Francisco area for
> $10. (Interestingly, that's what my lot was originally conveyed for back
in
> 1901!)
>
>
>
>
>
>
>
>
>
> >Maybe you've got some of those things that are 100 times cheaper for
sale,
> >let us know.<G>
> >
> >Sorry I don't get the personal attack? If I offended you somehow I
> >apologize and promise not to calculate your interest.
> >
> >Brent
> >
> >----------
> >> From: Richard <rjb@xxxxxxxxxxxxxxxxxxx>
> >> To: realtraders@xxxxxxxxxxxxxx
> >> Subject: Re: FYI the Dow in 1896 hit a low of 28.
> >> Date: Friday, September 11, 1998 12:09 AM
> >>
> >> I suppose you can stick with your math, but I'm damned glad you're not
> >> calculating the interest I earn on my money market account!
> >>
> >> As far as inflation, some things are 100 times CHEAPER now. So things
> >equal out.
> >>
> >> >I'll stick with my math. There are many ways to look at something.
> >> >
> >> >The power of compounding would seem great until you adjust for
inflation
> >> >which I have no figures for but a head of beef sold for 2 to 3
dollars
> >in
> >> >the movies. Some things are probably 100 times as expensive
especially
> >real
> >> >estate. So divide 9500 by 100 you get 95. If this voodoo math is
right
> >we
> >> >are only about 3.3 times as high as the all time low.
> >> >
> >> >Brent
> >> >> If you take a level of 28, 102 years ago, and compare it to the
high,
> >you
> >> >end
> >> >> up with an annualized return of 5.86%, even though the total growth
is
> >> >> 33,410%, or 328% per year. Shows you the power of compounding.
> >> >>
> >> >> Regards,
> >> >> A.J.
> >> >>
> >> >>
> >>
> >>
> >>
>
>
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