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Old 08-03-2013, 12:58 PM   #21
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If the Dow can go from under 7000 to 15600 in a little over 4 years, it can certainly go from 15600 to 36000 in 10 years. Or it might not. Or it might even go higher than that.
The 7000 to 15600 is counting trough to peak. If we discount the effect of the correction, then on longer term peak-to-peak trend, the Dow has moved from 11000 in 2000 to 15600 in 2013.

That works out to a 2.7% annualized gain. After accounting for inflation, it's flat in the last 13 years.
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Old 08-03-2013, 01:27 PM   #22
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That works out to a 2.7% annualized gain. After accounting for inflation, it's flat in the last 13 years.
And somehow we are all doing well!
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Old 08-03-2013, 01:46 PM   #23
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Yes, people who are still accumulating in the period 2000-2013 do OK if they keep on buying through the two market crashes.

So do retirees in the distribution phase who rebalanced during the crashes.

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... even if the market only bounces around, people who jump in/out rebalance can still make money, while the buy-and-holder will not. Such opportunity does not exist in a placid market.
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Old 08-03-2013, 01:57 PM   #24
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Yes, people who are still accumulating in the period 2000-2013 do OK if they keep on buying through the two market crashes.

So do retirees in the distribution phase who rebalanced during the crashes.
I've never bought the premise of buy and hold without rebalancing. I don't believe that anyone does this and if they do, then they should own a fund where the rebalancing automatically happens.

This would also assume that your buy and holder owns only one equity asset class, which I think is also rare. Most people have some mix of equity asset classes which more likely than not, will give you better performance.

If we really want to take it to the extreme, then we can use Japan: what if you bought Japan at the high with all of your money and never bought/sold any other asset classes. It's a silly example, because nobody has ever done this, but we can model it and use it as a data point on why equities are bad. This example isn't any different than buy/hold US 2000-2013 (except that it probably performed better).
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Old 08-03-2013, 02:06 PM   #25
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This would also assume that your buy and holder owns only one equity asset class, which I think is also rare. Most people have some mix of equity asset classes which more likely than not, will give you better performance.
As a slicer-and-dicer, I do not own index funds but individual stocks or sector ETFs, so that I can see which is underperforming and also hope to see which is overvalued.

But all this balancing, whether between sectors like I am doing or between stocks and bonds, relies on market fluctuations to gain ahead. If everything is flat and just muddles through, how does anyone make money?
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Old 08-03-2013, 03:44 PM   #26
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My thought is that Dow at 36,000 is not likely in my lifetime. Maybe 20,000 in 20-30 years from now.
It wouldn't surprise me to see the Dow at 20,000 by the end of this decade. That would equate to just under 4.5% annual return on the market. While that's by no means guaranteed in the short term, it would be far from unheard of. 20-30 years from now would indicate that the stock market underperformed inflation... not impossible, just unlikely.
So I tried a FIRECalc run to try to get an idea on the history. I entered $1M portfolio, 100% equities, zero spend, zero fees to try to see what the market has done in 30 years. Should be close to what the DOW has done.

I had to magnify my screen, and measure from the graph, since FIRECalc has a bug - it does not really report the low of the ending portfolios if the start was lower. Interestingly though, it shows 2.35x gain in the worst case 30 year period.

2.35 x DOW 15,368 = 36,115.

So a DOW 36,000 is about the worst it has ever done. Sure, it could be worse going forward, but it seems that would be an outlier, and I sure would not bet against it and certainly not against 20,000. The average gain is closer to 7x, that would be DOW..... ready....?

107,576

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Old 08-03-2013, 03:52 PM   #27
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So a DOW 36,000 is about the worst it has ever done. Sure, it could be worse going forward, but it seems that would be an outlier, and I sure would not bet against it and certainly not against 20,000. The average gain is closer to 7x, that would be DOW..... ready....?

107,576

-ERD50
+1. People think that 15,000 to 36,000 is a huge jump because it's lots of thousands. If we owned just one share of "the Dow" it would be a $21,000 dollar gain, which sounds absurd. I suspect that if you had predicted when the Dow would hit 3,600 when it was 1,500, people wouldn't have been so surprised.
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Old 08-03-2013, 03:59 PM   #28
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Dow 107k while gold is $10k/ounce and gasoline is $25/gallon keeps everything roughly in scale, but there will be more millionaires than ever!
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Old 08-03-2013, 04:07 PM   #29
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Will the FED Rally last? Or will it end then they stop printing?
Or will they ever stop printing?
Who knows?
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Old 08-03-2013, 04:14 PM   #30
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DJIA 36,000 projected in 2029 or 2044 based on two long term trend lines...or I could cherry pick and start do a regression from 1982 thru 2012 and claim it'll happen much faster (like 2021) and write and SELL WAY more books! I think I'll do that and write DOW 50,000 75,000 100,000 and make a fortune - eBook of course!!!

Too bad "past performance is no guarantee of future results..."
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Old 08-03-2013, 04:31 PM   #31
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The 7000 to 15600 is counting trough to peak. If we discount the effect of the correction, then on longer term peak-to-peak trend, the Dow has moved from 11000 in 2000 to 15600 in 2013.

That works out to a 2.7% annualized gain. After accounting for inflation, it's flat in the last 13 years.
You have to add in the dividends paid over the period. They make a huge difference.
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Old 08-03-2013, 04:55 PM   #32
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You can't see the big things coming that create the rampant growth. While I freely concede that as things stand right now we're likely in for slower growth/stagnation/muddling along, all it will take is "The Next Big Thing" to come along and change everything.
Agreed. And I think we could all think of some areas that have tremendous potential for amazing gains. Just the increasing ability to understand and use genetics and molecular biology to bring cures and new products is amazing. Then there are energy technologies, communications and information processing, etc, etc. And "luckily" we have a whole planet full of folks who still need the basics, not to mention the nice-to-have things.
I think there's plenty of room for dramatic jumps in economic growth. US investors would be well advised to be sure they will gain from these even if the big leaps occur outside the US.
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Old 08-03-2013, 04:59 PM   #33
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To get to 36,000, don't we have to assume that there is ample room for growth in corporate income? I don't see a lot of that, at least in the US. I think we're just about tapped out.
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Old 08-03-2013, 05:01 PM   #34
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Agreed. And I think we could all think of some areas that have tremendous potential for amazing gains. Just the increasing ability to understand and use genetics and molecular biology to bring cures and new products is amazing. Then there are energy technologies, communications and information processing, etc, etc. And "luckily" we have a whole planet full of folks who still need the basics, not to mention the nice-to-have things.
I think there's plenty of room for dramatic jumps in economic growth. US investors would be well advised to be sure they will gain from these even if the big leaps occur outside the US.
Agreed, but the where(s) in the last sentence are harder to predict nowadays...hopefully largely in the US, but who knows?
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Old 08-03-2013, 05:19 PM   #35
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Agreed, but the where(s) in the last sentence are harder to predict nowadays...hopefully largely in the US, but who knows?
Yes, I doubt anyone knows. But the foreign business done by US companies will probably do a lot to help those invested in a widely diversified basket of US companies. This, together with some broad foreign stock index funds (which should hold increasingly large amounts of the stock of foreign companies that grow the most) is what I'm counting on. I think those who may be at risk are those with more narrow holdings of just a few US companies.
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Old 08-03-2013, 05:28 PM   #36
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You have to add in the dividends paid over the period. They make a huge difference.
I did think about it. I tried to look for total return of "Diamonds" (DIA), the granddaddy of ETF and "Spider" (SPY) as the surrogates for DJ and S&P indices. No luck yet.

FIRECalc does not have recent years data, but I tried another online historical simulation which was up to 2012, and I hoped the software included dividend re-investments. From 2000 to 2012, after adjustment for inflation, the return is ... exactly flat!

The above does not seem right, so I will still be looking.

By the way, a $1MM did drop down as low as $550K, and that's not even at the lowest point, as the sample points are always on Jan 1st. This brings back to mind the pain we all went through. Yikes!

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... I think there's plenty of room for dramatic jumps in economic growth. US investors would be well advised to be sure they will gain from these even if the big leaps occur outside the US.
Yes, there are large portions of the world that can conceivably grow their economy 10 times. The US itself, I do not see much potential. European countries like Greece and Spain should be able to use some growth too, but tough luck there.

Regarding investing in emerging markets, a well-known guru said you should. Another guru said the US market was all you need. So, one has to make up his mind who to listen to.

PS. I saw your post earlier about how many US companies are really multi-nationals that derive a lot of their income overseas. Yes, I have a few. Examples include Caterpillar, Cummins, etc...
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Old 08-03-2013, 08:42 PM   #37
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Yes. As discussed in other threads, I tend to be very pessimistic and risk averse, which may partially explain why I am over-conservative with my investments. Only time will tell whose approach was right.
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Given that the dow is 15k now, your forecast implies a nominal return of 1 to 1.4% per year. This seems very pessimistic.
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Old 08-03-2013, 10:06 PM   #38
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OK, so I found a few other sites with S&P 500 historical total returns. Most accessible is simply Wikipedia: S&P 500 - Wikipedia.

From the above site, I computed the total return from 2000 through 2012 as 1.24X.

Then, from this site (Cumulative Inflation Calculator) I saw that the cumulative inflation from 1/1/2000 to 1/1/2013 is 1.36X.

A buy-and-hold investor lost money after 13 years! Yet, other posters and myself have not been doing so badly. We must have lived righteously. Amazing!

By the way, the 2013 return YTD is exceptional. If included, it would raise the above number from flat to a slight gain. Here hoping it will continue for a while. Reversion to the mean, I am hoping for.
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Old 08-03-2013, 11:15 PM   #39
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You have to add in the dividends paid over the period. They make a huge difference.
Viva dividends!
DIA for the past 15 years, 4.6% per annum growth, NAV without dividends (this is what is quoted in the news). 6.9% per annum with dividends. Dividends accounted for an additional 2.3% (which you won't see in the news).
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Old 08-03-2013, 11:24 PM   #40
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Using the inflation calculator NW-Bound referenced above, from Jan 1998 to Jan 2013, inflation was 42.50%, or about 2.4% per annum over the last 15 years. (If I did my sums correctly.)
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