Imagine two people who added $10,000 to their investment accounts on January 1st, every year for the past 15 years.

One of them is risk averse. They put the money into Certificates of Deposits, getting  a few percentage points each year, but the principal is insured.

The other is less risk averse; they put money into an S&P500 Index each year.

Who comes out ahead? The answer might surprise you:

>

Stocks vs Certificates of Deposit (1994 – 2008)

click for bigger chart
cd-vs-sp500-1994-2008

>

CDs in 2009 yield 1% – 2%, as the market fell and then rally; if the S&P doesn’t perform well for the rest of this year, CDs will have more gains again.

As of March, Bonds had outperformed Stocks from 1968 to 2009 — 40 years

>

Thanks, RM!

>

Previously:
Stocks vs. Bonds (March 28th, 2009)

http://www.ritholtz.com/blog/2009/03/stocks-vs-bonds/

Sources:
Used the CDs 6 mo (Annual) data from here:

http://www.federalreserve.gov/releases/h15/data.htm

Used the annual returns (with dividends) from here:
(did each year gain/loss seperate, then added the $10K for the next year)

http://www.moneychimp.com/features/market_cagr.htm

Category: Investing

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

148 Responses to “S&P500 vs CDs (1994-2008)”

  1. Hal says:

    Imagine holding the right SPX stocks and exiting equities in October 2007

    This chart tells me investing is all about understanding many things including cycles

  2. hr says:

    Now if there were only more preferential treatment on income taxes for dividends and interest!

  3. Tell me something else I didn’t know.

    Most people would have better luck playing the casinos than stock-picking, especially those that don’t have the GS trading desk on speed dial, and should therefore only invest their money in ways in which the return of principal and return on principal is protected by a contractual obligation. It helps even more if the investment is in FDIC insured CD’s or US government bonds where the contractual obligations are guaranteed by those missile silos in Iowa and elsewhere.

  4. super_trooper says:

    Fcuk, I shouldn’t just stick my money in some mutualfund and hope that everything will work out 30 years later? Everything looked so good in the 80s and 90s. I’ve been craving an annual 10% return.
    You could probably make an even worse graph using Japanese data.

  5. EricTyson says:

    The analysis turns out quite differently if you don’t assume that the stock investor would be so dumb as to put all of his money in a cap weighted index comprised solely of large U.S. companies.

    ~~~

    BR
    : 1) Its a proxy for the market;
    2) Its the single largest muytual fund in the world;
    3) Most Indexers were doing standard cap weighted investments; It was only an after the fact discovery (post big cap 2000 crash) that the move towards equal weight gained any significant adherents

  6. Mannwich says:

    But Cramer tells me that the stock market always outperforms everything else in the long term. Hhhmmm, define “long term”……

  7. “One of them is risk averse. They put the money into Certificates of Deposits, getting a few percentage points each year, but the principal is insured.”–BR

    “..but the principal is insured.”, Insured, only, by Paper/more Inflation.

    If Investors were, truly, ‘risk adverse’, they’d, thoughfully, consider the ‘safety’ of CDs. For, it, too, is an illusion.

    Also, speaking of Inflation, the chart, above, could use a Commodity, or the CRB Index, as a useful comparator.
    http://www.thefreedictionary.com/comparator

  8. ‘cept for inflation.

    I think this chart argues well for quarterly rebalancing and diversification. Two ‘automatic’ trading procedures that force a market timing discipline into your portfolio.

    I know that is sacrilege among many here but it would have worked pretty well based on the above chart

    I guess those two concepts were created and came about to offset corrupt central bankers. Now you know

  9. maynardGkeynes says:

    And think how much better CDs would have done without a deliberate policy by the Fed to keep the Fed Funds rate absurdly low in order to pump the stock market. Greenspan and now Bernanke have made Job #1 to punish small savers who just want to make prudent, safe investments at their local banks and sleep at night. Now those same people, who were enticed into risky investments, have seen their net worth devastated by the real estate and stock market bubbles. It’s terrible, and nobody seems to care about what happened to these folks except for the good guys like Barry and Jim Grant.

  10. donna says:

    Agreed, maynard — that’s the real problem with American business and finance — it’s all a crap shoot anymore instead of real investment. Everyone wants a big payoff instead of to invest in companies and receive a dividend for their good performance.

    Such a joke.

  11. Jdamon33 says:

    It has been a brutul, brutul 15 year span. I sometimes think I should just put all my money into CD’s. Sure as hell would sleep better and could probably focus on enjoying the last 20 – 30 years of my life vs stressing about the market. I could just see it now. I put all my money in CD’s and the market takes off on a 5 year bull run. Just my friggin luck.

  12. ben22 says:

    Mish did a post very similar to this towards the end of last month that went back even further. People should check it out if the like this.

    Cash will be king during the coming credit deflaion, it’s only just started.

  13. The Curmudgeon says:

    The irony here is that stocks, with a potential no-recourse value of zero, should have a risk PREMIUM, not be pulling returns below an asset that, at least in its insured form, provides a guarantee that you get the principal back.

    I don’t understand, and never have, why anyone without a direct line to the proprietary trading desk of Goldman Sachs would own stocks.

  14. Mannwich says:

    @Curm: For the same reason why hordes of people g0 to c@sinos all over the country (everywhere, it seems these days) and try their “luck”. We have a “score big or go home” culture. Slow and steady is for chumps.

  15. Joe Retail says:

    These comparisons are always amusing, but not too realistic when you assume that it’s either/or …

    What would it look like for someone who understands portfolio theory, put $5k in each class each year, and rebalanced as appropriate?

  16. Mr.Sparkle says:

    There have been tons of these charts floating around since SPX cratered this spring. Hell, I even did one looking at taking equal dollar amounts on Dec 31, 1996, investing one chunk in a 10-year treasury followed by a 2 year treasury and the other in SPX with dividend-reinvestment. Then I ran it out to 1/1/09.

    The returns weren’t even close – the treasuries blew away SPX. Worse, SPX didn’t even keep up with the official BLS CPI. Granted, yields now are pretty awful so this is kind of a “just so” comparison but still… enough people see these charts and start thinking laddering treasuries for their retirements is a great idea and there goes the demand side for equities from the 401ks. Perhaps then we will discover the truth of the saying that, “Only god knows what the correct multiple is for equities.”

  17. Mannwich says:

    @Joe: Fair point, but how many in this country either: (A) remotely understand portfolio theory, or (B) would have the discipline to stick to it over time? And, (C), even if most did A and B, how can we trust that the markets actually work at this point anymore should given all of the shenanigans that we’ve seen? Without that trust or confidence that the entire system isn’t gamed, why would anyone play this game, only to get fleeced time and time again by the big boys?

    Heck, most people in this country don’t even have a basic understanding of finances/money and economics. Unless it’s about celebrities, or becoming a celebrity, not many in this country pays serious attention to it.

  18. Joe Retail says:

    @Mannwich: re (A) and (B) – Absolutely agree that these are a problem, which is why promoting financial literacy will probably be my retirement project. re (C) – Your guess is at least as good as mine.

  19. Thor says:

    Manny – I think that assumes people are actually playing this game. The vast majority of the populace does not trade in the stock market, they invest in their 401k’s. Most people don’t pick stocks, they pick equity funds. . . .

  20. wunsacon says:

    Excuse me. Is now a bad time to bring up privatizing social security?

  21. Mannwich says:

    @Joe: I think that’s a worthy (and interesting) retirement project. Hopefully one of the silver linings of this mess once it’s all said and done (we’re not there yet, not even close) is that people will start to pay attention to their finances more closely and be aware of more serious things in general that affect their welfare, the welfare of their community, and country. It’s fine to have some fun in life but this country collectively needs to grow up.

  22. Mannwich says:

    @Thor: That’s even worse in my book. Buying and holding high fee non-performance based mutual funds have been a recipe for disaster for most people in this country. People have been trained to think they can just blindly dump their money into a high growth fund of some sort and not pay any attention to it. That’s been the exact wrong thing to do.

  23. wally says:

    The whole US myth of stocks as investment is, for most people, simply bogus.

    What the chart does not show is trading fees, stocks that left the index due to BK, the price of misjudging cycles and getting in and out at the wrong time.. they would all be negatives for the stock buyer and put him/her far below the fixed income investor. The other issue is timing: you’d better find out about your cancer at a market upswing or your whole investment history is cooked.

  24. Thor says:

    Manny – i won’t argue with you on that point. I’ve always been pretty good about where I put my 401K money. I was lucky (or unlucky depending on how you see it) to be working for a large advertising company up in SF back in the late 90′s. We had a lot of .com clients who started cutting their ad budgets long before that bubble burst. I saw that as a sign and moved all my 401K money out of high growth and into bonds. I ended up making money during that crash rather than losing it. You are correct to say that most people just dump money in there and never look at it after that. Sad, but I think that’s partly due to laziness but also partly due to investment “professionals” who come into a company and tell employees to put money in a 401K and let it sit there.

  25. EricTyson says:

    Barry: Your 2nd & 3rd points are valid but smart stock investors don’t just invest in large cap U.S. stocks. A global portfolio over this time period did far better than either the S&P 500 or CDs.

  26. @Joe & Mannwich: The research already exists and you can do the math here:

    http://www.businessweek.com/magazine/content/08_52/b4114055576406.htm?chan=magazine+channel_investment+outlook+2009%3A+investing+strategies

    My math translates the diversified portfolio (a mix of S&P 500, Bonds, Commodities, Real Estate) to a 15-year annualized return of 8.08%. At $10,000 PMT, set at the beginning of the year, every year for 15 years in this portfolio, my financial calculator gives an ending dollar value of $295,293.66.

    The “diversified” portfolio (done properly) beats CD’s, the S&P 500, and the conventional “moderate portfolio” by far.

    Of course, hindsight bias colors the vast majority of charts being distributed all over every media source today.

    On a separate but related note, a simple combination of moderation and self-knowledge will “beat the market” over most time periods (and provide greater quality of life as well)….

    “Moderation, which consists in indifference about little things, and in a prudent and well-proportioned zeal about things of importance, can proceed from nothing but true knowledge, which has its foundation in self-acquaintance.” ~ Plato

  27. The Curmudgeon says:

    Like the sub-header on Zero Hedge’s web site observes about organisms: The long-term growth rate is always, necessarily, zero. This is as true of organisms as it is of organizations that are represented by little fractions of ownership called a stock certificate.

    The trick is knowing when, like GM for example, that happens (even though GM is not trading at zero, even after the company itself said its stock was worthless–which is all you need to know about how stupid people are). Without perfect information to which only a few insiders have access (GS?), buying stocks, is like Manny says, more closely akin to gambling than it is investing.

    @wunsacon: Chuckle…good snark.

  28. Mannwich says:

    Thanks Kent. We are not a culture of “moderation” anymore, I’m afraid. Maybe that will change over time though?

  29. DeDude says:

    What if I had invested 30:70 in CD and SP500 and rebalanced the investment every year ?

  30. thetanman says:

    There are four people I know that made a fortune in the stock market. My cousin worked for a small oil company that was bought out, and then BP acquired the whole shebang. He now travels around the country with a large diesel truck towing a trailer that’s nicer than most houses. And guy who worked, starting in the 50′s, for aviation outfit that was bought by Boeing. And finally a couple that worked for Philip Morris for decades. The wife got addicted to the Home Shopping network and every day the UPS truck unloaded a bunch of boxes at her house. She must have spent 10s of thousands of dollars a year on all that crap. All are in their early 80′s and are worth many millions and have dividends shooting out of their kazoos. Time and the right investment. Everyone else I know didn’t make diddly, or like my father, got hosed.

  31. ben22 says:

    @Joe:

    you said:

    What would it look like for someone who understands portfolio theory, put $5k in each class each year, and rebalanced as appropriate?

    Look, the reason most people end up doing this in the first place, and most advisors do as well, is because they don’t have any opinion on any market, let alone 15 or 20 markets. Why should you put your money in one market you have no opinion of, let alone 15 or even 20. How did that strategy work out for you last year? Lots of bonds that lost of 20%, preferred stocks, even worse, international stocks, mid cap, small cap, REITS, you get the idea. This is part of my thesis for why we are going to go much further down from here given how deep this Bear mkt is. We still live in a stock ownership society. Clearly investors are still very much convinced it is capital gains that will lead to financial stability, look at the mania in the bank stocks while joe blow retail investor worries about missing the rally.

    Promoting financial literacy is not going to solve anything, there is already plenty of that all around us. The problem with this idea is that half the people promoting this so called literacy are giving horrible blanket advice. Besides, people actually have to want to learn this, and it requires a lot of time and effort.

    The bottom line is that if you are going to be in stocks you should be trading them, not holding on forever, no matter what, because you are a “long-term investor”, if that is your plan you are better off holding cash, cash equivalents like short term treasuries and a few foreign currencies.

  32. The Curmudgeon Says: http://www.ritholtz.com/blog/2009/07/sp500-vs-cds-1994-2008/comment-page-1/#comment-190621

    The irony here is that stocks, with a potential no-recourse value of zero, should have a risk PREMIUM, not be pulling returns below an asset that, at least in its insured form, provides a guarantee that you get the principal back.

    But since that principal is a floating fiat currency based on the political whim of the likes of the current clowns in charge should that also not carry some sort of risk premium? I guess what I am saying is should stocks have that much more of a premium than fiat principal? After all, at least you can sue a company for making your stock zero and they are somewhat subject to a certain set of rules and precedents. Good luck suing because of the madness of King George, central banker, who will arbitrarily change the rules and fiat values to suit the prevailing political climate

  33. Mannwich says:

    @ben22: I think that most in this country have forgotten about the importance of the old academic term, “it depends”. There’s simply a dearth of solid critical thinking because goddammit thinking is hard and hurts our brains. It’s not as fun as watching “American Idol” or “America’s Top Idol”, or even spending all of our energy in trying to get a ticket to Wacko Jacko’s funeral. Our culture loves simplified blanket statements (or neat little black or white “stories”, if you will) because it frees them of the onerous task of actually thinking for themselves. Until that changes and we actually grow up enough to appreciate and understand nuance, and respond accordingly, nothing will change. Human nature never changes over time.

  34. ben22 says:

    one other point:

    “Beat the market”, is perhaps the biggest scam ever. It’s not the point of investing, making money, and keeping money is. Someone is saying above that a diversified portfolio “beats the market” but this gets exposed in bear markets.

    Did it go up 38% last year? Shouldn’t it have if it beat the market? They do go both ways after all, shouldn’t you be able to beat in both directions?

    Oh wait, it was only down 20%, so it beat the market right? But surprise, you are still unhappy that you lost a lot of money. Someone can “beat the market” for you and still ruin your retirement. Like last year, if you were only down 35% you beat the market.

    What time frame to we apply the “beat the market” meme to, what degree of trend do we have to beat?

    Is it 10 years, 5 years, what about 5 days or 5 hours?

    If you think that probability is on your side to make money in the markets over time then buy away, sadly though, my guess is that 99% of people following this advice have been buying all the way down.

  35. ben22 says:

    mannwich,

    I agree, I think Joe had a good heart in what he was trying to do above, sadly though, I doubt most of the people he will be trying to help care enough to listen to him.

  36. constantnormal says:

    The biggest problem with the above chart is that the S&P 500 index does not move in a smooth manner as portrayed above — it is a noisy, herky-jerky movement that is difficult to tell where it is headed until long after it arrives there. And a mere 15 years is ‘way too short a time for any serious conclusions to be drawn.

    And of course, the period shown does not include any periods involving serious failure rates in CDs.
    Stick around, they’re coming. There is no escaping the Reaper.

  37. Thor says:

    Manny – spot on.

  38. Joe Retail says:

    @ben22: I wasn’t really suggesting this as an invesment approach, just offering another “what-if” to compare with the initial two. In the real world I believe in adapting according to circumstances, individual knowledge and preferences, etc., etc. My personal approach might be described as “buy and hold, until holding doesn’t make sense any more.” It’s worked so far, including over the past year.

    Unfortunately most peoples’ individual knowledge is insufficient to even understand that the management fees on retail mutual funds will eat up the gains and then some. Helping them with even this basic information could at least give them a bit more ability to defend themselves against the “professionals.”

  39. constantnormal says:

    People talking recent comparison with the S&P index should remember that they are comparing against one of the worst performance periods in history for the S&P index. And keep in mind that old adage, “Past performance is not indicative of future results”.

    I think that BR is just stirring the pot, posting an inflammatory chart like that in this place. He’s prolly chuckling to himself right now. Was the temperature in the stew getting a tad chilly, BR?

  40. Joe Retail says:

    “investment” … Did I say I could type?

  41. super_trooper says:

    @ EricTyson at 1:16 pm Says:
    “Barry: Your 2nd & 3rd points are valid but smart stock investors don’t just invest in large cap U.S. stocks. “A global portfolio over this time period did far better than either the S&P 500 or CDs.”

    How about providing a graph of a corresponding “global” portfolio that compares the mean investment.
    What’s a smart investor? You only know what’s smart after the fact. Some people at AIG.F.P. thought they were the smartest on the block. People investing in Japan thought they were smart investors. People investing in tulips thought they were smart. Nobody invests thinking they are dumber than the other one.

  42. super_trooper says:

    @Kent @ The Financial Philosopher
    what’s the moving average of that comparison over the last 30 years? I prefer continous data. Not selective single datapoints

  43. Bruce N Tennessee says:

    Well, I have been the recipient of pure dumb luck over this period of time…so I will just continue to learn from the working investors on this site. Thanks to all of you.

  44. constantnormal says:

    @Joe Retail 2:04 pm

    If “invesment” is the biggest typo you ever make, you’ll be a cnandidate for snaithood.

  45. constantnormal says:

    Bruce — where does one sign up for this “pure dumb luck” thing? I already got the “pure dumb” part.

  46. ben22 says:

    @constant:

    People talking recent comparison with the S&P index should remember that they are comparing against one of the worst performance periods in history for the S&P index.

    The chart above includes 1994-1999 as well does it not?

  47. Bruce N Tennessee says:

    Constant:

    My father says I look like the postman…so maybe that is where I got mine…

  48. Pat G. says:

    That result doesn’t surprise me. I’ve always believed the markets weren’t much more than hype. Step right up, place your bet… like a casino. The problem is that too many people have an indirect or direct effect on the price of your shares based on what they may or may not do. That, you can not control and often find out about after it is too late. Call it the detrimental nature of the human touch.

  49. constantnormal says:

    only an hour to go before the daily “running of the bulls” … hey, what would that chart look like if instead of buying the S&P 500 index annually with $10K, if instead one took a single $10K stake and bought an S&P 500 index ETF every day at 3:25, and sold it the same day at 3:59? Hmmmm?

  50. Thor says:

    wasn’t 889 one of the resistance levels you guys were talking about? Or was it 883? Or both?

  51. cvienne says:

    @constantnormal

    Keep it simple…Just buy Goldman Sachs…

  52. cvienne says:

    @Thor

    They are more ‘support’ levels…and it really could be anything…

    880, 877…whatever

    Probably a lot are focusing on 880 because it’s so visible…I see the possibility of taking it out to the down side (possibly to SEARCH & DESTROY some stop losses), then going quickly to like 877 and charging right back…

  53. cvienne says:

    @lefty

    gettin up to the top of that pennant on TLT…move to PAR FORTHCOMING…

  54. constantnormal says:

    @ben22 2:22 pm

    OK, one good 5-year period, one not-so-good 10-year period — kinda skews the results a bit against the bigger picture, dontchathink? Especially considering that we’re talking compounding here — although the additional time spent compounding for the 5-year good times should compensate (over-, under-, who knows without doing a lot more work than this is worth?) for the twice-as-long period of not-so-good times.

    How long do these boom and bust cycles last? Is it not reasonable to expect charts comparing them to include at least ten of the cycles? And if we’re talking about 10-year (or longer) periods of consolidation/substandard performance (2000-2009, 1966-1982, 1937-1950, 1918-1924 — I’m looking here at the Tuttle Asset Mgmt 100-year chart of the DJIA as a long-term proxy for the markets in general), then should we not be looking at hundred year histories instead of cherry-picking a couple of periods and extrapolating to the moon? And if we have to look at hundred-year charts, of what value is that to individuals whose investing lifetimes is considerably less than that?

    That’s what I find so empty about this sort of “analysis”.

    Furthermore, how about, if we invest our 10K lump sum on the last day of the month instead of the first? Or the 15th of the month? Or if we average it in weekly buys throughout the month?

    The only thing that I can conclude from this chart is that there is a benefit to regularly saving, with riskier investments being both better and worse than less-risky investments, depending upon when you measure. I fully expect that another line on the chart of the NASDAQ 100 would show more variation, but at different places.

    And of course, as Keynes said, “In the long run, we are all dead”.

    ~~~

    BR: Tuttle? F%$k dat.

    Here are our 100 years charts:

    Looking at the Very Very Long Term
    http://www.ritholtz.com/blog/2003/11/looking-at-the-very-very-long-term/

    100 Year Dow Jones Industrials Chart
    http://www.ritholtz.com/blog/2005/12/100-year-dow-jones-industrials-chart/

    Dow Jones Chart (1900-2004)
    http://www.ritholtz.com/blog/2005/08/dow-jones-chart-1900-2004/

    Market Cycles: 100 Year DJIA
    http://www.ritholtz.com/blog/2005/09/market-cycles-100-year-djia/

    100 Year Dow
    http://www.ritholtz.com/blog/2008/12/100-year-dow/

  55. going broke says:

    @ constantnormal
    “took a single $10K stake and bought an S&P 500 index ETF every day at 3:25, and sold it the same day at 3:59?”

    Not sure what “your chart” would look like but your brokerage fees chart would go off the chart!

  56. The Curmudgeon says:

    Oh my…the pop pooped today…on the Dow anyways, it started back down…could it be the little problem Goldie claims to have had with its proprietary trading software?

    There so much bullshit out there, I’m not even sure whether to believe their Russian 007 really did anything. I’m thinking he’s maybe cover for their having rigged the market so well in Q2 that they’re paying out $700,000 per employee this year.

  57. constantnormal says:

    @cv 2:53 pm — “Keep it simple…Just buy Goldman Sachs…”

    I would, but then GS would be disgraced, with their minions embedded throughout our government being expelled and prosecuted, and my investment suffering greatly. I’ll just (not so quietly) hide in my corner, with my blanky and my mattress o’ cash, and await the dawn, when the night terrors depart.

  58. cn,

    as you know, that quote of Keynes offers grand insight into the type of A**hole that cat really was.

    for, in actuality, in the Long-Run, one’s descendants are, certainly, about.

    that quote, merely, provides the animus for the Leaden Rule: “Screw unto Others, b4…”
    http://www.thefreedictionary.com/animus

  59. cvienne says:

    @cn

    Do yourself a favor and just run that cash through a paper shredder before you stuff it into your mattress…

    Your sleep will be a lot more comfy :-)

  60. Mannwich says:

    Wow, I leave for a walk with the dog and come back 30 minutes later wondering where the PPT is. Still plenty of time for them to jump in here.

  61. cvienne says:

    @LB

    Hey lefty, the Jan 105 calls I bought on TLT are up 60% now…

    Should I take the money & run, or should I hang around for a 14 bagger?

  62. Thor says:

    you’ve made a 60% return on an investment? I’d take it – don’t be greedy ;-)

  63. ben22 says:

    @constant,

    Here, this might help if you are interested in looking at larger time frames and it covers DCA strategies as well. I do not think this is more work than what it’s worth, I find it eye opening. People have been brainwashed to think it is smart to buy and hold stocks, or better yet, buy and hold a large basket of different types of asset classes.

    http://globaleconomicanalysis.blogspot.com/2009/06/long-term-buy-and-hold-is-still-bad.html

    Also:

    http://www.ritholtz.com/blog/2009/03/stocks-vs-bonds/

    Further, it wasn’t just a “good” 5 year period from 1994-1999, and at least I can find other examples of longer term market returns that match what we’ve gotten over the last decade. Have people really forgotten so fast how unreal the late 90′s were for stock returns? Crack and almanac and do a quick glance and tell me when the last time was that you saw year after year returns like that.

    @Thor,

    the major support shelf as I see it is in btwn 870-885 on the S&P. We keep testing around that area and staying above. If we were to break through in sharp fashion (high volume, strong decliners/advancers, etc. ) then that gives the bears a strong short term case for a lower drop from there. Fwiw I still don’t think that this is the re-start of the primary trend which is down, I still think the countertrend rally is in place however it might be a while (August?) now before we get new recovery highs. In the meantime I’m just trading really small and sitting on a lot of cash. I admire the people getting really short here but it’s not for me just yet. I like to go big on something when the probability is way in my favor and I’m just not there on the short side just yet.

  64. ben22 says:

    @MEH,

    Thanks so much for someone other than me seeing how absurd that Keynes quote is. People really seem to have fallen in love with it though lately.

    You doing anything with Silver? I’d expect a short term bounce here before we resume this awesome decline. I think the 8′s are in the cards now. Odd, silver shows the same h&s pattern that you can see in equities.

  65. Thor says:

    Ben and CV – thanks for that – thanks also for dumbing it down a little for me. Question for all you stock boys (and Karen) out there. If you had to recommend a couple of books for people just starting out with investing what would be your top two choices? I must say, not only do I feel like I’m missing out when you guys go all ‘stock speak’ on us, I do have some money I need to invest and there are so many books out there (as well as this blog) that I’m not sure where to begin.

  66. I-Man says:

    Clavadista!~

  67. cvienne says:

    @I-man

    Watch out for the hidden bugee cord on your clavadista after a few stops are destroyed ;-)

  68. ben22 says:

    @cvienne,

    the 30 year still looks like it can move to the 121-122 area.

    My favorite wholesaler item of the day. Guy from Fidelity just stopped by the office, asked me if I was still defensive, I just laughed. This is the same guy that basically treated me like a complete fool last spring when I said the DOW would go below 7k and told me how it was great to DCA into some of their equity funds and that their economists weren’t nearly that negative and that I might put my career at risk.

    Now, to really piss people off, then I watched him roll away in a brand new 7 series when he left today.

  69. I-Man says:

    @ Thor…

    Not to be short or anything (no pun intended) but why dont you stick to a plain MMF, or high yield bank savings account until the panic low, and then buy some SSO or SPY, QLD or QQQQ?

    Theres also the VTI.

    But I would keep it as simple as possible, build up your ammo, and then pounce when the panic hits. Buy the panic, sell the manic bro.

    You’ll have some good time to learn before that happens.

  70. cvienne says:

    And for anyone nervous out there because they are LONG, you have some solace…

    Jim Cramer officially declared the BOTTOM of the housing market at the end of last month, so if you own a home, YOU’RE ALL SET!

  71. Mannwich says:

    @Thor: I’m currently reading an old one, “Market Wizards”, that was recommended by a few year in the past, I believe. I’m sure those who know far more than I do on this topic will offer a few more worthy suggestions as well.

  72. ben22 says:

    Thor,

    I-man suggested some very good books before but really just keep coming here. Sometimes I find books on the stock market as not the greatest starting point because you aren’t actually doing it, you are just reading it. Buy yourself an almanac as well, or keep a diary. You’ll learn enough if you stay for a year or two and stick with it. That will be a year or two more than 99% of people ever put into learning about the markets.

  73. Thor says:

    I-Man – Sorry, should have clarified, I’m in absolutely no hurry to invest any of this money anytime soon. It’s all sitting in a MMF at the moment. I won’t go near any other investment strategy until I feel more comfortable with both market conditions and my own education with investments.

  74. I-Man says:

    @ CV:

    I hear ya bro… but aint no bungee cord snapping me out of this position… not unless its got stretch up to 930 and beyond…

  75. cvienne says:

    @I-Man

    “But I would keep it as simple as possible, build up your ammo, and then pounce when the panic hits. Buy the panic, sell the manic bro.”

    That’s good advice…My friends who are not traders, these days I tell them that what you aren’t willing to lose you might as well just hunker down in CD’s for awhile until the next PANIC BOTTOM…

    Then you can buy some quality stuff cheap…

  76. cvienne says:

    @I-Man

    I’m trying to get me a $33.62 print on USO but she ain’t cooperating….YET…

  77. I-Man says:

    As per books, I think the older the better… but here’s a quick list.

    Note: These are books on TRADING not investing. I dont invest. Its a VERY important distinction. That said:

    Check out Richard Wyckoff. “Stock Mkt Technique 1 and 2″ and “Studies in Tape Reading”.

    “Getting Started in Chart Patterns” by Bulkowski.

    “Technical Analysis of the Financial Markets” by John Murphy.

    “Japanese Candlestick Charting Techniques” by Steve Nison.

    Some good ones… on trading.

  78. Andy T says:

    Love It!

    I want to take that analysis one step further….What would it mean if the Sheeple Investing Public never bought into the stock market myth and just put their money into savings/capital? What would all those people on Wall St do? Imagine all the wealth and talent that has been completely wasted in fees/trading/financial service advice all these years. We’ve built up this huge infrastructure that actually serves no purpose other than to extract fees from investors and waste money.

    What if there was no stock market?

  79. cvienne says:

    @Thor

    And do yourself a favor…Learn TRADING (even if you don’t intend to be a trader)…

    It’s the best way to understand if you’re getting the stock you are buying at the best possible price…

    As Warren Buffet says…You make $$ when you buy a stock not when you sell it…

  80. I-Man says:

    We’d be really bored I think AT… but we’d still have commodities to play with… I’d probably be a carpenter or stone mason.

  81. cvienne says:

    @Andy T

    “What if there was no stock market?”

    Then all the hookers in New York would struggle as well…and the yayoe crop in South America would die in the vine…

  82. cvienne says:

    Here we go…

    seek & destroy all STOP LOSSES for the next 10 minutes…

  83. Mannwich says:

    The running of the bulls…….for the exits?

  84. constantnormal says:

    What the Keynes quote says — to me at least — is that postponing your gratification for the long haul is pretty meaningless, a case of “always tomorrow, never today”.

    Unless you live solely for the benefit of your descendants (and if you do, I’m sure they will think of you fondly as they drain their trust funds — not!), then you should be very concerned about short-term performance.

    I agree that Keynes was a lousy economist, and a lousy investor, but that disparaging quote about long-term investing seems OK to me. If you can’t make money over the short haul, then the long haul really doesn’t matter, as we get to the long term via a series of short term steps. Another way of looking at that quote is that is demeans buy-and-hold investing, which seems to be pretty popular in these parts (demeaning buy-and-hold, that is).

    But hey — different strokes for different folks. I’m willing to entertain explanations as to why that particular quote is so absurd.

  85. Mannwich says:

    @constant: I thought that Keynes was viewed as a successful investor and that he made quite a bit investing, or am I thinking of someone else?

  86. call me ahab says:

    nice little sell of- a few more days like this and I will be even with my QID- I have been sitting on this trade for far too long

  87. Andy T says:

    I-Man….

    Well, I often ask myself about what the stock market really is and why it actually exists….

    If I owned a good company making a good return, what kind of interest rate would my bankers charge me in order to expand my business? 6%, 8%, 10%….pick a number of some kind….The question I would ask of myself is, do I take on the debt and keep the entire company for myself and all the operating cash the firm generates is mine and mine alone. Or, do I go to the stock market via an IPO to raise “permanent” cash that’s free, but give away a portion of my company? The answer I come to is that if one has a really good business, you would normally just remain private and avoid the headaches of listing. Which means that there’s only really three reasons to publicly list:

    a) the amount of interest you’re being charged is too high (suspect business?);
    b) you don’t like your business prospects THAT much and you want an exit strategy;
    c) you happen to have that “truly special” business idea that simply requires an enormous amount of new cash that can’t be supported in the normal debt market.

    I’m oversimplifying of course, but the conclusion I reach is that there are probably only a few truly great public companies out there, and that if you randomly buy publicly traded firms, chances are you’re buying into either a) a poorly run business or b) the owners EXIT strategy.

    In other words, you’re better off investing with a good bond manager….

  88. call me ahab says:

    that’s “sell off” not “sell of”

  89. constantnormal says:

    Hey AT — does this close of the S&P well below 887 portend the arrival of the long-awaited retesting of the “leftback bottom”?

  90. cvienne says:

    @cn

    FWIW – I don’t think it means anything just yet…This just is an attempt to put an 8 day floor before opex Friday next week so GS can clown around and pick off any newly minted shorts…

  91. cvienne says:

    If you were a TRADER and had shorted at 931, you should have covered at the close today…

  92. constantnormal says:

    @ Mannwich 3:54 pm

    You are correct — I am in error, having falsely recalled that he had run some large fund into the ground.

    http://www.dailywealth.com/archive/2008/dec/2008_dec_06.asp

    Live and learn, or is it Learn and live?

  93. I-Man says:

    Interesting that there was no “pivot reversal” of any kind today…

    And if you thought previous SPX closes were on the brink of the neckline… then you dont get any closer to the edge than we did today…

    The old “close at the lows” as a negative forebear to the next days tape is going to be tested. Maybe we get a sharp drop tomorrow to shake out some more longs and pivot then, completing the bear trap scenario which could provide the juice to go back up and carve out a second shoulder.

    I dont know, this thing looks weak as shit no matter how you look at it… two shoulders or not.

  94. Andy T says:

    Yowsa. So much for that little “potential” doji hammer bottom yesterday and “resilient market” action. The only thing I can really see is 877, pretty much where we closed. Those were the low ticks from 5/15 and 5/21…maybe we get some kind “flat” neckline here and rally vigorously back to 930? I have no EW/technical basis for that….but it’s the only shred of hope I can see for bulls/longs….

  95. Christopher says:

    That Nison book is excellent….and available free online….
    http://www.forex-book.org/

    Maybe it’s the Jackson Effect.
    http://www.youtube.com/watch?v=cOxIKJTTB2k

  96. call me ahab says:

    Andy T Says- re going public-

    “the owners EXIT strategy”

    undoubtedly- have you wondered as I have why some businesses are publicly traded at all- for instance-restaurants- most good restaurants are local affairs that have great atomosphere and one of a kind fare that can’t be copied- unlike the likes of the chain restaurants that blight suburban neighborhoods throughout the country- what is the purpose? Why do people care to have another Chotchkies down the road-

    I think many of these establishments are endangered anyway- but still- i never understood it- if I am visting Memphis- I want to check out some local fare- I do not need to go to a Bubba Gump Seafood eatery- which I saw in New Orleans by the way- unbelievably- in the midst of all the excellent restaurants that are unique to New Orleans-

    I guess many of these chains are set up for Mr. and Mrs Suburban- to set them at ease- to make them feel comfortable in strange surroundings- I wish they were all boarded up

  97. Bruce N Tennessee says:

    Franklin:

    Now is your time to learn the economic history you’ve been watching…it is ok to holler “green shoots” but every morning now just take your time and listen to what the market is telling you. When the market goes against what you strongly believe, here is where you learn patience and can tuck it away for when you have a good job and real money to invest..

    Don’t fight it. Learn from it.

  98. ben22 says:

    constant,

    the reason I don’t like that quote is because of how people have started to use it, the second part of the quote is what is most important imo but that never gets written out. Too many people are using it to say: Why do anything at all? Why work, why ever save, why not skip a payment on a bill, why do anything? In the long run, you are dead anyway so why put forth any effort. If you lived your life like this, even after you were dead, would others not feel the impact? Not saying you used it this way, just saying. That’s an attitude that is more than embraced by more than a few people here and there.

    As for the comment about your descendants. Think of the other side of it. Lets say you are a grandparent. Your daughter is a single mother that is struggling to get by and you set aside what little you could in order to help pay for your grandchild’s education. In some parts of the world that child being able to go to school could literally be the difference between life and death. Not everyone that inherts money is a trust fund baby, that’s just a popular way to look at it.

    I don’t know how accurate this is, and it’s old, but I doubt the figures are off by much:

    http://money.cnn.com/2003/11/25/retirement/inheritance/

  99. cvienne says:

    @ahab

    “I wish they were all boarded up”

    I’d be happy to be the lead bulldozer in the wedge formation…

  100. Robertm73 says:

    Funny in the late 30′s and the early 80′s everyone agreeed Stocks bad. In the late 90′s and late 20′s and early 2000 we said stocks the best thing ever. It just goes to show there is right time to be in a market and a right time to not be in a market. Most people will stare at you blankly when you say this. How could they know? What signs tell us? In hindsight yes we see the perfect time. We know 2001 was bad, we know 2008 was bad, we know 1929 and 1932 where bad. In the end you have to study the market and make that decision. Some people are great. I know when to dump my internet stock, I know when to short oil and bank stocks. Most people chase the ghost, following the hot markets till they run out of money. Look the Madoff people, the dunp all there money with a supposed master. In the end he took all there money. Either you figure out how to mind you money or someone will take it. If that menas CD’s great. If that means you want to do the homework and study then stocks might work for you. But if you want to gamble without understanding the game just buy some lotto tickets.