Ten Yr Anniversary of Market Run

[marko]

I like to track my 3, 5, 10 and 15 year average returns on M*. To me, it smooths out the rollercoaster and gives me a better view of 'real' performance; especially the 3 year. IOW one year could have some huge overreaction to something and not really portray if I'm still headed in the right direction.

Now, as we approach the 10 year anniversary of when the market turned around from the Great Recession, I'm thinking about how this skews the 10 year average.

Yes, I know "10 years is what it is" but my 24% loss in '08 was mitigated by my 27% gain in '09. Now with the loss of visibility to 2008 (Feb '09) looming I'm wondering how we'll interpret just looking at 10 years of terrific gains without the drop that helped spur them. Not so useful suddenly!

So....I've proven definitively on this forum and throughout my entire life that I'm no math whiz and maybe this is just another example. (?) Comments?

 

[mrfeh]

Not sure what you're trying to guard against...your 10 year returns are what they are. The other side of the coin is that your 10 year returns from 2000-2010 were pretty ugly.

As long as you don't use the last 10 years to predict the future, it's all good.

 

[LOL!]

5 years ago, when the 2007-2009 debacle dropped out of 5-year performance numbers lots of funds started touting their skills again. And quite a few new investors showed up at boglehads.org talking about 100% stock portfolios.

So I expect another round of the same this coming Spring. It is only human nature.

 

[Spock]

Yup. One of my first bits of home work is to look at how an investment did in 2007/8/9. The date range is now aged-off the available data in my 401Ks fund history charts.
Now market performance is sort of like the baseball steriod-asterisked home run records... needing to factor in that the fed is STILL buying securities to prop up the markets 10 years after the "recovery" started.

 

[USGrant1962]

...
Now market performance is sort of like the baseball steriod-asterisked home run records... needing to factor in that the fed is STILL buying securities to prop up the markets 10 years after the "recovery" started.

I thought the Fed stopped buying securities in October?

 

[imoldernu]

A little off topic, but it looks like that the DJIA is up almost 18% since Christmas 2018. What have I been missing?

Fed rate is 2.5%... When was the last time it was that high, and what happened?

Am thinking that I'll keep my Ibonds, as long as the government stays honest in calculating the CPI-U.

 

[audreyh1]

I thought the Fed stopped buying securities in October?

They stopped buying additional bonds and growing their balance sheet years ago - Oct 2014. They started unwinding their bond portfolio 3 years later in Oct 2017. They are still rolling over some of their maturing bonds but let $50 billion a month mature without rolling over (known as the QE Unwind) to bring their balance sheet down to around half of what it was at the peak. At $600 Billion a year, the process will take another 2-3 years. They choose not to dump bonds all at once but have clearly spelled out the process and timeline - seems prudent enough to me. Last year we were getting rising interest rates AND the QE unwind at full speed which also puts upward pressure on interest rates.

 

[38Chevy454]

You're right that with the drop of the 2008 market now off the 10 year charts it makes it look like anybody throwing a dart at the market dartboard would be successful. But I also think that it shows support for being in equities for the long term if you look at a longer than 10 year history. Don't overreact when a downturn comes, stay the course to ride it out.

 

[Sunset]

Why not calculate your score based on total investment time, or if that is too hard, just have a 15 yr avg.
Nothing magical about a 3,5,10 yr avg.

 

[marko]

5 years ago, when the 2007-2009 debacle dropped out of 5-year performance numbers lots of funds started touting their skills again. And quite a few new investors showed up at boglehads.org talking about 100% stock portfolios.

So I expect another round of the same this coming Spring. It is only human nature.

Yes! This is sort of thing is what I was wondering about. Excellent insight.

 

[ERD50]

... Not so useful suddenly!

So....I've proven definitively on this forum and throughout my entire life that I'm no math whiz and maybe this is just another example. (?) Comments?

Here's where you got off the tracks... it never was useful!

Why not calculate your score based on total investment time, or if that is too hard, just have a 15 yr avg.
Nothing magical about a 3,5,10 yr avg.

+1

It only mattered if you had zero, won the lottery, and dropped it all in exactly 10 years ago. But then, that specific date should be your measurement point, not a rolling 10 years.

I see a similar thing on the MPG indicator on my car. I can have it set to show the average for the last 25, 50 or 100 miles. Let's say I have it on 25, and it shows an average of 27 MPG. I hit a stretch of road where I'm slowing sightly, and it's downhill, so my instantaneous MPG shows 30~40 mpg for a while. And I see my 25 mile average go down. WTH?

Well, the 26th mile just dropped off the average, and maybe that mile was in the 40~ 60 mpg range. It happens.

-ERD50

 

[GravitySucks]

They stopped buying additional bonds and growing their balance sheet years ago - Oct 2014. They started unwinding their bond portfolio 3 years later in Oct 2017. They are still rolling over some of their maturing bonds but let $50 billion a month mature without rolling over (known as the QE Unwind) to bring their balance sheet down to around half of what it was at the peak. At $600 Billion a year, the process will take another 2-3 years. They choose not to dump bonds all at once but have clearly spelled out the process and timeline - seems prudent enough to me. Last year we were getting rising interest rates AND the QE unwind at full speed which also puts upward pressure on interest rates.

Thanks. Was just going to look this up again as previous posts didn't sound right.

 

[Spanky]

I
Yes, I know "10 years is what it is" but my 24% loss in '08 was mitigated by my 27% gain in '09.

BTW, you need 31.58%gain to recover a 24% loss.

 

[marko]

BTW, you need 31.58%gain to recover a 24% loss.

That's why I wrote 'mitigated' and not 'cancelled out'. I said I wasn't a math whiz, it doesn't mean I'm completely incompetent.

 

[target2019]

Mitigated meaning is "lessened" the effect.

 

[marko]

Mitigated meaning is "lessened" the effect.

Right, I meant that in the context of a 10 year average, my 24% loss in '08 was lessened due to a strong gain of 27% in '09. I had no illusions that '09 fully recovered my loss, it simply lessened the average's loss over that 10 year period. Had '09 been equally as bad as '08 my 10 year average would have been worse, hence the lessening of the impact.

As they say on the Princess Bride "maybe that word doesn't mean what I think it means"!

 

[triangle]

I agree with your sentiment @marko.

While I don't consider myself a technical or chart based investor, up until now it has been useful to pull a 10 year chart that included price action during the financial crisis. I don't know of any service that will show a 15 year chart with a couple of mouse clicks; at least as not as easy to find as compared to a 1 year, 5 year, 10 year, or forever chart. There is a big difference in seeing the details in a chart that is drawn at the scale of 10 years as compared to one that is capturing 30+ years.

 

[target2019]

There is a rolling returns tab in Portfolio Visualizer.

 

[Spanky]

you could make your own charts & do analysis with Shiller's data of the S&P500:
http://www.econ.yale.edu/~shiller/data/ie_data.xls

 

[Spanky]

That's why I wrote 'mitigated' and not 'cancelled out'. I said I wasn't a math whiz, it doesn't mean I'm completely incompetent.

My apology - no implication of incompetence intended.

 

[marko]

My apology - no implication of incompetence intended.

No problem! Things get misconstrued with written word.
Peace.

 

[USGrant1962]

you could make your own charts & do analysis with Shiller's data of the S&P500:
http://www.econ.yale.edu/~shiller/data/ie_data.xls

Here's a fun thing to do with that spreadsheet (if you find spreadsheets fun).

Scroll down to the last (most recent) PE10 number and doubleclick to see the formula references. Column J will be highlighted. Scroll back up 10 years and check out the Real Earnings in 2009, which are beginning to scroll out of the calculation. By the end of this year CAPE10 will drop about 2.5 points just from this, assuming we don't enter a 2009-style recession first.