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Oh definitely.
But all you have to do is go back to the 1980s and see that if we just
"regressed to the mean" since then, we're due for a major pullback.
(Actually I'd kind of welcome it as a buying opportunity).
Of course as to when?????
>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
>
>
>----------
>> 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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