Comments on: Major Index Return, 1825 – 2008 http://www.ritholtz.com/blog/2008/11/major-index-return-1825-2008/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Sat, 21 Nov 2009 08:40:44 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: H.T. http://www.ritholtz.com/blog/2008/11/major-index-return-1825-2008/comment-page-1/#comment-129211 H.T. Thu, 27 Nov 2008 14:19:40 +0000 http://www.ritholtz.com/blog/?p=10624#comment-129211 Not calling a bottom here per se--nor discounting some of the points made above regarding the validity of the data [imputed etc], but what this screams to me is what I consider to be perhaps the most powerful force in the known [financial] universe... 'regression to the mean'. It also fits nicely with the late great Sir John Templeton's maxim "buy at the point of maximal pessimism". good luck Not calling a bottom here per se–nor discounting some of the points made above regarding the validity of the data [imputed etc], but what this screams to me is what I consider to be perhaps the most powerful force in the known [financial] universe… ‘regression to the mean’. It also fits nicely with the late great Sir John Templeton’s maxim “buy at the point of maximal pessimism”.

good luck

]]> By: DavidB http://www.ritholtz.com/blog/2008/11/major-index-return-1825-2008/comment-page-1/#comment-129166 DavidB Thu, 27 Nov 2008 03:09:42 +0000 http://www.ritholtz.com/blog/?p=10624#comment-129166 I guess the most shocking part is after almost 200 years of supposed progress we see what we can accomplish in 2002 and 2008. You would think that after all that time, our money management would have learned to moderate the downside. It appears we have only learned how to exacerbate it I guess the most shocking part is after almost 200 years of supposed progress we see what we can accomplish in 2002 and 2008. You would think that after all that time, our money management would have learned to moderate the downside. It appears we have only learned how to exacerbate it

]]> By: PhilC http://www.ritholtz.com/blog/2008/11/major-index-return-1825-2008/comment-page-1/#comment-129128 PhilC Wed, 26 Nov 2008 22:11:31 +0000 http://www.ritholtz.com/blog/?p=10624#comment-129128 Howard published this chart a month ago. He attributes it to Canaccord: "Take a look at this fantastic chart created by my friend Colin who runs internet research at Canaccord" http://howardlindzon.com/?p=3917 Howard published this chart a month ago. He attributes it to Canaccord:

“Take a look at this fantastic chart created by my friend Colin who runs internet research at Canaccord”
http://howardlindzon.com/?p=3917

]]> By: constantnormal http://www.ritholtz.com/blog/2008/11/major-index-return-1825-2008/comment-page-1/#comment-129119 constantnormal Wed, 26 Nov 2008 21:21:07 +0000 http://www.ritholtz.com/blog/?p=10624#comment-129119 Regarding the positive skew -- I chalk that up to the fact that there is no such thing as negative dividends, and the positive dividends add an extra oomph to the right-side og the distribution. While decreasing the dividend will also drop the stock price, cutting the dividend tends to be the final actions taken by a company, exactly due to the impact on the stock price. I found it interesting to retrace the year-to-year returns from 1929-1939 on this "synthesized" chart. If one treats 2008 as an analog to 1929, then we should have some better years ahead -- AFTER we get past the analog to 1931, which, using a little Kentucky windage, I guesstimate at being down about -80% to -90% and occurring around 2010. THAT would go a ways toward rounding out this distribution! And then there is the analog to 1937... Thankfully, this is a methodology that has no validity, based on synthesized data and an invalid assumption that the future tends to strongly follow the past, so the only place it could possibly utilized is by economists and government planners. Regarding the positive skew — I chalk that up to the fact that there is no such thing as negative dividends, and the positive dividends add an extra oomph to the right-side og the distribution. While decreasing the dividend will also drop the stock price, cutting the dividend tends to be the final actions taken by a company, exactly due to the impact on the stock price.

I found it interesting to retrace the year-to-year returns from 1929-1939 on this “synthesized” chart. If one treats 2008 as an analog to 1929, then we should have some better years ahead — AFTER we get past the analog to 1931, which, using a little Kentucky windage, I guesstimate at being down about -80% to -90% and occurring around 2010. THAT would go a ways toward rounding out this distribution!

And then there is the analog to 1937…

Thankfully, this is a methodology that has no validity, based on synthesized data and an invalid assumption that the future tends to strongly follow the past, so the only place it could possibly utilized is by economists and government planners.

]]> By: roncfp http://www.ritholtz.com/blog/2008/11/major-index-return-1825-2008/comment-page-1/#comment-129088 roncfp Wed, 26 Nov 2008 20:03:41 +0000 http://www.ritholtz.com/blog/?p=10624#comment-129088 Well said Chuck Ponzi. That chart tells me that, statistically, it's quite risky to be bearish at this point. But one never knows does one. :-) Well said Chuck Ponzi. That chart tells me that, statistically, it’s quite risky to be bearish at this point. But one never knows does one. :-)

]]> By: Chuck Ponzi http://www.ritholtz.com/blog/2008/11/major-index-return-1825-2008/comment-page-1/#comment-129085 Chuck Ponzi Wed, 26 Nov 2008 19:59:13 +0000 http://www.ritholtz.com/blog/?p=10624#comment-129085 <blockquote>jopo Says: if that’s a bell curve in the making, looks like the skew is toward negative returns in the future! </blockquote> Jopo, You'll have to remember that the +0 to +10 is going to be skewed due to the positive inflation bias post-1913. You will pretty much always have a positive bias. More like I'd say that after a year like 2008, we're due for a serious snap-back unless we're more like 1930/1931 and not 1931/1932. Look for the trend, it's there. Most very bad years are followed by very good years. Chuck Ponzi

jopo Says:

if that’s a bell curve in the making, looks like the skew is toward negative returns in the future!

Jopo,

You’ll have to remember that the +0 to +10 is going to be skewed due to the positive inflation bias post-1913. You will pretty much always have a positive bias.

More like I’d say that after a year like 2008, we’re due for a serious snap-back unless we’re more like 1930/1931 and not 1931/1932. Look for the trend, it’s there. Most very bad years are followed by very good years.

Chuck Ponzi

]]> By: MorticiaA http://www.ritholtz.com/blog/2008/11/major-index-return-1825-2008/comment-page-1/#comment-129084 MorticiaA Wed, 26 Nov 2008 19:55:20 +0000 http://www.ritholtz.com/blog/?p=10624#comment-129084 Bruce N: I've been having the same problem for about a week. Bruce N: I’ve been having the same problem for about a week.

]]> By: leftback http://www.ritholtz.com/blog/2008/11/major-index-return-1825-2008/comment-page-1/#comment-129079 leftback Wed, 26 Nov 2008 19:35:33 +0000 http://www.ritholtz.com/blog/?p=10624#comment-129079 Guys, you do what you want - but most double short charts look like a big head + shoulders here, and 840 has held as support rather well, so this is not a good risk:reward from my humble point of view. Guys, you do what you want – but most double short charts look like a big head + shoulders here, and 840 has held as support rather well, so this is not a good risk:reward from my humble point of view.

]]> By: leftback http://www.ritholtz.com/blog/2008/11/major-index-return-1825-2008/comment-page-1/#comment-129074 leftback Wed, 26 Nov 2008 19:20:13 +0000 http://www.ritholtz.com/blog/?p=10624#comment-129074 I was thinking that this graph indicates the increasing likelihood that we see a year-end rally of fairly substantial proportions. The fact that the market rallied in the face of the durables number is bullish. I expect to see a fade into the holiday here - look, there is a big safety trade going on in Treasuries after the bombing news. Another chance to get short the long bonds here... I was thinking that this graph indicates the increasing likelihood that we see a year-end rally of fairly substantial proportions. The fact that the market rallied in the face of the durables number is bullish. I expect to see a fade into the holiday here – look, there is a big safety trade going on in Treasuries after the bombing news. Another chance to get short the long bonds here…

]]> By: Bruce N Tennessee http://www.ritholtz.com/blog/2008/11/major-index-return-1825-2008/comment-page-1/#comment-129064 Bruce N Tennessee Wed, 26 Nov 2008 18:41:42 +0000 http://www.ritholtz.com/blog/?p=10624#comment-129064 Barry, Why come (southern term) it is that when I go to the main website I miss certain threads that have been posted? This thread for instance is only available to me once I get to the website and then update once I am here. Anyone else have that problem? Or is that what is intended? Barry,

Why come (southern term) it is that when I go to the main website I miss certain threads that have been posted? This thread for instance is only available to me once I get to the website and then update once I am here. Anyone else have that problem? Or is that what is intended?

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