07-06-2018, 03:29 AM
(This post was last modified: 07-06-2018, 03:33 AM by GhastMaster.)
I ran into this article at zero hedge. It got me thinking about the recent news of GE being pulled from the Dow Jones Industrial average.
People, even professionals, often cite stocks rising over time as a reason to invest in the market. Frequently they say something to the effect of, "Don't worry about downturns, over any 20 year period of time you'll be up"
One flaw in this logic is that the DOW is heavily manipulated. In the linked article you can see the image below, which illustrates that there has been very little nominal movement in the Nikkei. Similarly, the S&P has seen little growth.
![[Image: 2018-07-05_13-13-08.jpg?itok=3z5HRM6t]](https://www.zerohedge.com/sites/default/files/inline-images/2018-07-05_13-13-08.jpg?itok=3z5HRM6t)
(source: zerohedge.com)
Even with manipulation, looking at the inflation adjusted DOW: There was a period from 1966 to 1995 with zero growth.
![[Image: economix-18djiaCPI-blog480.png]](https://static01.nyt.com/images/2013/11/18/business/economy/economix-18djiaCPI/economix-18djiaCPI-blog480.png)
(source: economix.blogs.nytimes.com)
​From 1966 to 1982 the DOW went from ~$7600 to ~$2100 inflation adjusted dollars(IAD).
Now consider, we are in a similar peak not a trough. If the markets dropped similarly over the course of the next 16 years, the DOW would settle at ~$6600 IAD(very close to the nominal intraday low in 2009).
That would be (2018+16yrs =2034) - 1964= 70 years of zero growth.
People, even professionals, often cite stocks rising over time as a reason to invest in the market. Frequently they say something to the effect of, "Don't worry about downturns, over any 20 year period of time you'll be up"
One flaw in this logic is that the DOW is heavily manipulated. In the linked article you can see the image below, which illustrates that there has been very little nominal movement in the Nikkei. Similarly, the S&P has seen little growth.
(source: zerohedge.com)
Even with manipulation, looking at the inflation adjusted DOW: There was a period from 1966 to 1995 with zero growth.
(source: economix.blogs.nytimes.com)
​From 1966 to 1982 the DOW went from ~$7600 to ~$2100 inflation adjusted dollars(IAD).
Now consider, we are in a similar peak not a trough. If the markets dropped similarly over the course of the next 16 years, the DOW would settle at ~$6600 IAD(very close to the nominal intraday low in 2009).
That would be (2018+16yrs =2034) - 1964= 70 years of zero growth.