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Tuesday, October 07, 2008

Grossman followup: S&P in 1970s

One more note regarding Grossman's talk: he closed by saying it's embarrassing to hear commentators say that what's happening in the markets is unprecedented. As a case in point, he referred to the drop in the S&P in the mid-70s. He could find the exact numbers during his talk, but seems like he may have been referring to the period from Jan 1973 to Oct 1974, when the S&P dropped from a peak ~120 to a trough of 62: a drop of nearly 50%. Another remarkable fact: it didn't reach 120 again til July 1980. That was near the start of an unprecedented nearly 3-decade bull market in US equities.

Play around with ; but instead of looking at 1d or 1w, take a longer historical view.


jeremy said...

The idea of investing in stocks for the long run is down right silly in my point of view. The collective public seem to believe that "buying the dips" and "dollar cost averaging" is an absolute. Pure marketing spin I say. What investors must understand is that "The long run" may be spans of 10-20 years. There are many examples of this in history....something that the mutual fund industry would like us all to forget so that we mindlessly make monthly contributions. We've already had 10 years of no return in the S&P, go check the charts, no factor in the fees many have paid to mutual funds for the service. Maybe conventional wisdom isn't so useful after all?s

shooGu said...

Interesting thoughts Krops. I wouldn't be quite so extreme as to say it's downright silly and pure marketing spin. But then you're quite a bit more polemical than me..I'm still trying to find that balance, the golden mean, the middle way...

But what you said about "the long run" is spot on: what I've distilled it to for the layperson (e.g. my parents) is that you should hold any investments in equities that you think you will need to touch inside of 10-20 years.

True that much of the industry would like us to ignore history (not sure it's forgetting history--that would mean we knew it in the first place!)..but I still believe in some institutions in the industry that do have their clients' interests in line with their own. E.g. Vanguard.

Actually, I think all of us--the industry, the investing public, even central bankers--that that we were in a new paradigm: the great moderation, etc, where stocks would just rise 10% a year, from here til infinity. The end of history, if you will.

That's why I'm loving James Grant these days...he's been out there, reminding of us of our history, through this whole cycle.