It just makes it easier to illustrate my point, and was already posted as reference. You really could use any period before and after any market collapse and it would show the same.
I think it’s just a case of talking past each other, but it was the conclusion I drew from the way you were presenting things. I agree with you that market crashes are not something that investors should be actively happy about. If you agree with me that for investors continuing to invest regularly in the market through a crash, this will lead to a better outcome for them (assuming the market at some point returns to its previous level) than if they stop investing and pull all their money out, adding their previously monthly investment to their cash pile instead - then we don’t disagree on anything.
DJIA adjusted for inflation (log scale):
Courtesy of: Dow Jones - DJIA - 100 Year Historical Chart | MacroTrends
A couple of thoughts…
- It may be me, but it’s a bit odd that the DJIA couldn’t break 10k even during the period of post-WW2 American dominance.
- Finally, when the USSR fell and it seemed for a brief period that the Pax Americana worked, the DJIA finally exceeded the heights of 1965.
- But… and here’s the weird part… the general global narrative has been one of American decline since 2001 (and if you don’t want to accept America as declining, even relatively, just put the word ‘perceived’ in there). It’s definitely true that this country doesn’t bestraddle the globe the way we did in 1962, even 1982. And yet… the market doesn’t reflect this. At all.
- And I know… “geopolitics and the DJIA aren’t correlated, JohnT”… Which is true, until you ask yourself “if I went back to 1900 and had to invest in ONE country, which would it be and why is it the United States?” Or 1700 (and 1800) with England? Or 1600 with France?
- And so if you do think our geopolitical dominance is coming to an end, our market looks wildly overpriced.
I am minimizing my time on social media for a while so please don’t expect me to vigorously defend the above coffee-table thoughts, but I did want to point out that… as a 55yo man… my (and most of our) expectations of how things work were (and are) built on a foundation which was really unique in the historical context: an untouchably militarized, industrialized, global hyperpower who has an economic system designed to hoover up the world’s resources, dominating an Earth of war-weary and half-industrialized continents, many regions not even having electricity.
And that’s no longer the case. “Past performance is no guarantee of future results” is as true for countries as well as the investments contained within.
Preach it brother!
Oh, wait I did…and was completely ignored 
That being said, I have not zoomed out on an inflation adjusted graph of the DJIA in many many years. Technically, it still looks decent.
This, thanks. That’s why, in my last post, I explicitly compared the crash to a flat period. If the market is at X now and at X again some time later, and you’re investing regularly during the interim, a crash is better for you than a flat market. To introduce a case where the market is X now and Y later (where Y>X) is to fight my hypothetical.
A flat period is not all that different than my example of the crash. The crash was just an example to make this easier to see for everyone. The US stock market almost always has an expected annualized rate of return of between 4% and 6% above the risk-free rate (Treasuries). If it it didn’t people would sell out for something with less risk. You would ever stay in a market that is expected to remain flat or go down.
Again, stop thinking about shares as if that has any meaning at all in this exercise. Any time you invest in the stock market, you expect it to be going up. And someone said upthread that it can’t go up forever. If this were correct, we would need to rewrite all of financial theory and practice.
I don’t mean to pick a fight, but I’m still struggling to understand the point you’re making.
To make what easier to see for everyone? That a crash is bad because it will cause the value of your existing investments to go down? We know that.
Yes - on average, over a sufficiently long period. Not every year without fail.
Sure you would - because the alternative is trying to time the market, which is at best risky and at worst impossible to do with consistent success.
Over the long term, while accepting it might go down in the short term.
Again, I don’t think we actually disagree on much, if anything - I just don’t really follow what you’re trying to communicate.
If it always went up in every time interval compared to other easy to make investments than the rational thing to do would be to put as much money possible in as early as one could. If one’s time horizon is long enough then regardless of the month to month or year to year fluctuations the rational thing is the exact same.
If you are buying periodically, than the path the stock market takes does actually matter and it’s better to have periods that are flat or down if the end point is the same. Think about it. If the stock market went to let’s say 1 and the government didn’t step in how many shares of an index could you buy? Quite a bit. Now when the stock market goes back to 10000, let’s say, how much would those shares be worth? Quite a bit more. So more shares times a factor of x is obviously greater than less shares times a factor of x. Buying low is a benefit and you can only buy low if the value is low.
Now, human psychology being as irrational as it is in so many, people tend to panic and sell during lossy times and people tend to become irrationally exuberant during periods of high valuations. But that got me thinking about that dip during the pandemic. For every seller there had to be a buyer and if I was rational enough to buy a few thousand during that dip I wonder who the big buyers were during that low point. Someone had to be making billions off of other people’s irrational behavior and I’m curious which institutions/investors did.
True, and everything you said is correct. I will pop back in, but I only commented in this thread due to CrafterMan’s first comment. Everything else stemmed from that.
This is the big if, and was the point of my example of investing in the period before, and during, the Depression. This end point, if it is far out enough in the future such that any short-term volatility is cancelled out, is permanently lower after the big market drop.
I agree that not 100% of the percentage that the market dropped is permanent, as I agree there is all kinds of rational (people forced to sell just to pay their bills) and irrational (selling as a “stop loss”) investor activity that may cause it to fall more than it should. So I agree that the long-term expected percentage return of every incremental dollar that you invest during the downturn is going to be higher than the long-term expected percentage return of every dollar you invested before the downturn, you still end up worse off at this end point if it is sufficiently out into the future.
And this is exactly why people who are young and far from retirement should put as much money as is feasible into retirement accounts.
At the beginning of the 2008 crash I had every expectation that the market would be going down. I did not stop my 401K deposits. That would be timing the market. If for some reason you think the market will be down for decades, that would be different. Obviously you don’t use a time machine to go back and invest in 1928-29. Which, we notice, is probably the worst years to invest during the entire 20th century.
Same here. No one should try to time the market, regardless of their own expectations,
That basic human welfare should depend on such vagaries and randomness strikes me as a dumb way to run a society.
It doesn’t. Investing is just one portion of managing one’s life.
So, I’ve decided to not make any changes but it’s not because of some prohibition against market timing. I feel that the current downside risk offsets the potential gain.
What do you think about Sam_Stone’s analysis: post #17?
I think that @Sam_Stone is a smart guy that makes many interesting points. And that all of Sam’s analysis is already priced into the market. I doubt he knows anything that the thousands of people whose job it is to analyze economic conditions don’t also know.
Or, to put it another way, if “obvious upcoming issues”, as Sam puts it, are in fact “obvious” then they will be priced into current market valuations. If they are not “obvious” but rather somewhere between “unlikely” and “likely”, then the probability of them happening will be priced into the market. There is nothing that is truly “known” (i.e. 100% certain) that isn’t priced into the market, unless it is secret knowledge, which I doubt Sam has.
So I will stay the course.
One other note - your notion that “downside risk offsets the potential gain” is just another way of saying you think the market is fairly priced, it seems to me. If you truly are worried about downside risk you would be selling equities, not holding.