Posts filed under “Markets”
Interesting historical comparison, from S&P via Barrons (long excerpt):
"Bull markets — defined by S&P as periods with a 20% or more
advance from a prior bear-market low — have lasted more than four and
a half years on average since 1942, according to Sam Stovall, chief
market strategist at S&P.
In those 11 bull-market scenarios, the first year was best, with
average returns of 38%. In the second year, returns were about 12% This
bull market has almost mirrored those returns. The third year is likely
to produce market returns of about 8%, double the historic average,
The current bull market is somewhat parallel to the bull market that
began in October 1974, Stovall says. That run and this one came after a
roughly 48% market decline. And, in an eerily familiar scenario,
citizens faced an increasingly expensive and unpopular war, rising
energy prices and the threat of stagnating economic growth.
But there was soaring inflation and short-term rates were high and
rising. Still, in that fourth year, the S&P 500 eked out a 7%
return, according to S&P."
Investors, however, may do better if they look to specific sectors rather than buying the market as a whole.
"Stock outperformance in the fourth year of a bull market comes in defensive areas — consumer staples, health care and technology," Stovall says. "Whether times are good or bad, you still eat, smoke and drink — and if you overdo it, you go to the doctor."
Health-care stocks have been up 31% and information technology stocks increased 28%, on average, in the fourth year of a bull market, according to S&P.
Consumer staples, a sector which includes businesses less sensitive to economic cycles, such as the producers and retailers of food, beverages and personal products, have been up 26% in the fourth year.
Consumer discretionary stocks, more sensitive to economic cycles, also have produced decent returns in the fourth year — 22% on average — but with less frequency than consumer staples, according to S&P. The segment includes makers of cars, refrigerators and clothing as well as hotel and restaurant chains."
Apologies for beating a dead horse, but — if you do not have an online subscription to the WSJ yet — Barron’s is included — considering the cost, you are missing alot of good stuff.
UPDATE October 7, 2005 2:13pm
I (obviously) don’t agree with Stovall’s assessment, but he is the chief
market strategist at S&P, and has some decent insight into his firm’s index.
Here’s a pair of charts looking at the two periods:
Give Stovall his props — these two charts have more than a passing resemblance . . .
Will the Bull Catch a Second Wind?
Barron’s WEEKDAY TRADER, WEDNESDAY, OCTOBER 5, 2005 6:45 p.m.
Market Resistance Held, Will Support?
Barron’s GETTING TECHNICAL |
WEDNESDAY, OCTOBER 5, 2005 4:05 p.m.
Among individual investors, David Swensen isn’t a household name. But he is an icon in the world of big institutional money managers such as endowments and pension funds.
Mr. Swensen’s fame comes from his oversight of Yale University’s $15 billion endowment fund, which, since he was hired 20 years ago, has returned an average of 16% a year, far outpacing the market and other funds run for universities. Before arriving, Mr. Swensen had never overseen an institutional portfolio, and he brought to the job an unconventional approach for dividing up the portfolio among different asset classes. He is now Yale’s chief investment officer.
Five years ago, Mr. Swensen set out to write a book that would bring the lessons he learned to individual investors. Instead, he says he found that the option most accessible to individuals — mutual funds — often makes it impossible to beat the market. And even when they do find good managers, individuals end up shooting themselves in the foot, he says.
So while Yale relies on actively managed portfolios, Mr. Swensen says individuals should just stick to index funds, especially those run by not-for-profit companies. He also likes exchange-traded funds, which trade on exchanges like stocks, but says "buyer beware."
Excerpts from an interview with Mr. Swensen follow:
WSJ: You had hoped to give small investors a road map for beating the market based on Yale’s approach to investing. What happened?
Mr. Swensen: I found when I started down that path that individuals just don’t have the same set of investment opportunities available to them that we do here at Yale. In fact, the evidence showed me that the mutual-fund industry has completely failed to provide reasonable active-management returns to individuals.
WSJ: To say that it completely failed — that’s a pretty harsh statement to make.
Mr. Swensen: I think the evidence is there. The crux of the failure is with the for-profit management of funds for individuals. Mutual-fund managers have a fiduciary responsibility to investors. Obviously, if they are operating in a for-profit mode, they have a profit motive. When you put the profit motive up against fiduciary responsibility, that fiduciary responsibility loses and profits win.
continued below . . .
Yale Manager Blasts Industry
THE WALL STREET JOURNAL, September 6, 2005
This weeks Barron’s has an interesting chart from Sy Harding. If you are unfamiliar with Harding’s work, have a look at his prescient 1999 book, “Riding the Bear: How to Prosper in the Coming Bear Market.” (Spend the $1.49 on used copy — its well worth it). Harding suggests that: “UNLESS I’M LOOKING AT the…Read More