Thursday, March 10, 2011

Anniversary talk

I started this blog in February 2006. So I can note five years of semi-regular posting.

There is some chatter about another anniversary, it is two years since SPY bottomed around 66. Back then, virtually no one thought the stock market would double in the next two years. I certainly did not. I quote a post below, and reading it back, the mention of Dow 3000 looks silly in hindsight, but I was not the only one. If I knew then, what today's prices would be, investing and trading would be real easy, it always is in hindsight. Trees don't grow to the sky, neither does a major economic power tend to wither and die overnight and go to zero. Here are a couple quotes from the depths of the lows:

From a March 3, 2009 post
"SPY Limbo, how low can it go?"
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... the market is not historically cheap yet, not based on current earnings. SPY 300!? Dow 3000? That would not be a pretty picture and would likely coincide with a major economic depression. Let's hope things don't get that bad. The chart does project that low. SPY 600 is some support, but it is not major support on the long term chart, not really.

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Though to my credit I did tell this story in my February 28, 2009 post
"Worst February since 1933"
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I like to tell the story about when my dad first started investing. The stock market was near a top in 1967, it went sideways for a while before spiraling down in 1973/74.

After losing 60% to 70% of his money, dad wanted to sell all his stocks and mutual funds near the bottom. My mom, who had been against the entire idea of investing in the first place, told my dad that he was an idiot. That after a 70% decline it wasn't time to sell, that it was time to buy. My dad ended up doubling his monthly mutual fund purchases. In hindsight, we all know things did turn out okay, and increasing the stock allocation was a smart move.
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As a footnote, the fall from the all time SPY high of 150 to 66 is about 56%.

The anniversary of the market lows is a reminder that reversion to the mean is a powerful theme for long term investors. In plain English it means if things are really bad, there is a tendency for things to get better, and if things are really good, they tend to fall back towards average. It tends to take a major historical event such as the loss of a major war, major famine, major plague, or revolution and fall of government, to destroy a major economy.

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