Real S&P Chart

[djAdvocate]

this is an interesting chart:

www.multpl.com/s-p-500-price/

what it shows is the inflation adjusted S&P.

what i find interesting about it is the fairly steady growth over time, when measuring from the lows.
excepting the 1929 crash, check this out:

year    change from previous low    average change/yr (not compounded)
1870    NA
1920    +50%                                    +1%
1952    +32%                                    +1%
1982    +105%                                  +2.6%
2008    +300%                                  +11.5%

does it really seem right to anyone that over 100 years of less than 3% real growth could be exceeded by a factor of 4x?

it seems to me like we are still way over trend, now, and that the market could be in for a real beating.

if the market were to fall 50%, it would still be above trend.

[Deleted]

I guess I don't understand your math.  Can you explain in greater detail?  Also, I don't know if this makes a difference or not, but you're counting capital gains, but ignoring dividends.  It's probably more accurate to look at total return?

[djAdvocate]

Dec 16, 2013 7:42:43 GMT -5 @investorbob said:

I guess I don't understand your math.  Can you explain in greater detail? 

i am just trying to show how the S&P has generally produced very modest REAL returns over time, but is way beyond that since the 80's.

Also, I don't know if this makes a difference or not, but you're counting capital gains, but ignoring dividends.  It's probably more accurate to look at total return?

yeah, that might account for the difference actually, since dividends are way down since the 80's.

[Deleted]

dividends are way down since the 80's?

you do realize that dividends follow rates, correct?

as rates rise, the dividend yields also rise to compete

as rate go down, so do the yields

we are, and have been in a historically low interest rate period

if they werent held down artificially, rates right now would be in the 6-7% range....and the interest on the debt would be killing us

go back and look at the interest rates in the early 80's    

[Deleted]

I just can't tell the starting and ending years for each period.

[djAdvocate]

Dec 16, 2013 10:29:11 GMT -5 @gdgyva said:

dividends are way down since the 80's?

you do realize that dividends follow rates, correct?

that is not entirely true.  the historical relationship is actually based on the inverse of PE ratios (expected return from ROC -vs- cash to investors).  but that is really a completely different discussion.....

edit: fyi- you can view the "earnings yield" HERE: www.multpl.com/s-p-500-earnings-yield
the ratio i am referring to is the ratio of this chart to the dividend yield, which has been fairly steady historically, favoring EY.

as rates rise, the dividend yields also rise to compete

as rate go down, so do the yields

we are, and have been in a historically low interest rate period

if they werent held down artificially, rates right now would be in the 6-7% range....and the interest on the debt would be killing us

go back and look at the interest rates in the early 80's    

interest rates were far higher than dividend yields in the early 80's:

www.multpl.com/s-p-500-dividend-yield/

but you and ib point out a significant problem with my back of the napkin analysis.

dividend yields prior to 1980 averaged above the rate of inflation ALL BY THEMSELVES.  the average yield from 1870 to 1952 appears to be about 5%.  so, you can add 5% to the total return in post 1, and get 6% for that period.

from 1952-1982, the yield average was far closer to 4%, which gives a 6.6% TRR for that period.

since 1982, the yield average has slumped steadily, and is currently 2%,  this gives a TRR of about 14% during the period.

i am not sure what this tells us as far as corrections are concerned, but it is certainly less than i was estimating in the OP.

summary: the historical TOTAL REAL RETURN of the stock market from 1870-1982 appears to be 6-7%.  since then it is about 2x that.

[djAdvocate]

Dec 16, 2013 10:40:39 GMT -5 @investorbob said:

I just can't tell the starting and ending years for each period.

secular bear lows.

[djAdvocate]

i just plotted out the EY -vs- DY, and here is what i found:

the general range of this ratio is 1-2.  ratios near or below 1 are bullish.  ratios near or above 2 are bearish.

the current ratio is 2.65
a big increase in dividends or a huge drop in stock prices (or a bit of both) would put it back in balance.
however, given the amount of growth in the last (30) years, it would be safer to assume the latter...

edit: actually, interest rates increasing would probably put it back in balance, by driving up yields and down stock prices.
that is so probable a possibility that it could be called "virtually guaranteed".

[Deleted]

How is what you are doing different from just looking at the p/e ratio?

[djAdvocate]

Dec 17, 2013 15:16:40 GMT -5 @investorbob said:

How is what you are doing different from just looking at the p/e ratio?

what this analysis does is measures the relative value of PE in the marketplace.

i get into arguments with people all of the time about stocks that pay no dividends and never will.  they argue: why would i buy such a stock?  my reply to them is generally: dividends deprive a company of investment capital that it can use for acquisition, buyback, and other investments: why should i invest in such a company?

the truth is that the value of an equity is related to both of these things.  but there is an external reality to stocks, as well: the reality of fixed instruments.  if something out there is paying 14% fixed (for example), and i have a RISK INVESTMENT that might, historically, get me 11%, that risk investment makes NO SENSE WHATSOEVER.

what the EY/DY ratio shows is how far out of whack that competitiveness is.

[Deleted]

I need to look at this in more detail.  Seems interesting, but you're making me think....  What's up with that??

So lack of thoughtful replies means I'm busy or being lazy, but I will review more closely.

[djAdvocate]

Dec 17, 2013 16:37:55 GMT -5 @investorbob said:

I need to look at this in more detail.  Seems interesting, but you're making me think....  What's up with that??

So lack of thoughtful replies means I'm busy or being lazy, but I will review more closely.

i want to actually enter all of these numbers in a spreadsheet and see how the buy and sell signals work out.  as time allows.....

[Deleted]

Dec 17, 2013 15:37:14 GMT -5 djAdvocate said:

Dec 17, 2013 15:16:40 GMT -5 @investorbob said:

How is what you are doing different from just looking at the p/e ratio?

what this analysis does is measures the relative value of PE in the marketplace.

i get into arguments with people all of the time about stocks that pay no dividends and never will.  they argue: why would i buy such a stock?  my reply to them is generally: dividends deprive a company of investment capital that it can use for acquisition, buyback, and other investments: why should i invest in such a company?

the truth is that the value of an equity is related to both of these things.  but there is an external reality to stocks, as well: the reality of fixed instruments.  if something out there is paying 14% fixed (for example), and i have a RISK INVESTMENT that might, historically, get me 11%, that risk investment makes NO SENSE WHATSOEVER.

what the EY/DY ratio shows is how far out of whack that competitiveness is.

if an investor can get 60% of what he can get through equities in a 100% safe investment, the market would not see much going that way

right now, i can easily get 3.5 to 4% on solid blue chip/utility equities

the 10 year yield on bonds is what, 2.8%......

that is why so much is in equities....and people have flocked away from bonds

when there is NO real return on bonds (2.8% is normal inflation rates) there really isnt much choice other than equities

not sure where you are going with this analysis......

[djAdvocate]

Dec 17, 2013 17:28:49 GMT -5 @gdgyva said:

Dec 17, 2013 15:37:14 GMT -5 djAdvocate said:

what this analysis does is measures the relative value of PE in the marketplace.

i get into arguments with people all of the time about stocks that pay no dividends and never will.  they argue: why would i buy such a stock?  my reply to them is generally: dividends deprive a company of investment capital that it can use for acquisition, buyback, and other investments: why should i invest in such a company?

the truth is that the value of an equity is related to both of these things.  but there is an external reality to stocks, as well: the reality of fixed instruments.  if something out there is paying 14% fixed (for example), and i have a RISK INVESTMENT that might, historically, get me 11%, that risk investment makes NO SENSE WHATSOEVER.

what the EY/DY ratio shows is how far out of whack that competitiveness is.

if an investor can get 60% of what he can get through equities in a 100% safe investment, the market would not see much going that way

right now, i can easily get 3.5 to 4% on solid blue chip/utility equities

the 10 year yield on bonds is what, 2.8%......

that is why so much is in equities....and people have flocked away from bonds

when there is NO real return on bonds (2.8% is normal inflation rates) there really isnt much choice other than equities

not sure where you are going with this analysis......

i am going to stay out of equities, for now.  i think this is a very risky market.

[Deleted]

if you have a short time window...a few years or such...i heartily agree

if you have a LONG time line where the investments can just grow, i totally disagree

take GE for an example....$ 27.xx a share today     probably 10% frothy (my max buy price would be at $ 24.xx right now

but unless something drastic happens (BP event), this company is worth $ 50 10 years from now

and while you own it, they pay you around 2% a year in dividends just because.....

and there are hundreds of companies like this....steady growth, steady dividends, great balance sheet

could the market correct, and the stock be at $ 16-18 next week?

sure.....and i would be buying more of the company

it sure in the hell beat 2.8% yield on a 10 year treasury note.....

[Deleted]

I've basically been avoiding investing any new money for a couple of years (401k being the exception). So far, that has been a mistake, but we'll see.

I'm sooo close to the magical 7-figure net worth.  I was hoping that my Christmas bonus would put me over the line before any market correction, but not quite....  I was so hoping to at least see the number, even if it will be short-lived.

[Deleted]

i understand the fear and the trepidation of those who stay out of the market

some believe it is rigged....

some believe only the rich can play in the game

it all depends on the mindset of the individual

what do YOU WANT?

income? growth? safety? 

what is YOUR tolerance for risk?

and most importantly, what is your goal?

retirement, vacation home, income supplement, inheritance for children, etc

based on these questions, and the answers you give, depends on whether or not you should be "in the market"

and hopefully someone has gone over these with you at some point.....

if not, why not?

[Deleted]

If that was meant for me, I generally stay fully invested.  I'm only talking about 7% of my NW being in cash.  If this stimulus goes on for a while, it might get up to 10%.

[Deleted]

it was meant for all

good questions to pose to everyone.....

and individually, we all have different responses

the market isnt for everyone......

but for long term growth, you cant beat the results

[djAdvocate]

Dec 18, 2013 9:04:22 GMT -5 @gdgyva said:

if you have a short time window...a few years or such...i heartily agree

i am a long term investor.  but i think this is a bad time to buy, personally.

if you have a LONG time line where the investments can just grow, i totally disagree

take GE for an example....$ 27.xx a share today     probably 10% frothy (my max buy price would be at $ 24.xx right now

but unless something drastic happens (BP event), this company is worth $ 50 10 years from now

forgive me for saying so, but that ROI is not acceptable.  at least to me.

and while you own it, they pay you around 2% a year in dividends just because.....

and there are hundreds of companies like this....steady growth, steady dividends, great balance sheet

could the market correct, and the stock be at $ 16-18 next week?

sure.....and i would be buying more of the company

it sure in the hell beat 2.8% yield on a 10 year treasury note.....

i am not talking about investing in fixed income long term, bro.

[djAdvocate]

Dec 18, 2013 11:34:05 GMT -5 @gdgyva said:

it was meant for all

good questions to pose to everyone.....

and individually, we all have different responses

the market isnt for everyone......

but for long term growth, you cant beat the results

i am suggesting that new investors might want to keep their money off the table, for now.  that is all.

[Deleted]

Dec 18, 2013 11:56:29 GMT -5 djAdvocate said:

Dec 18, 2013 9:04:22 GMT -5 @gdgyva said:

if you have a short time window...a few years or such...i heartily agree

i am a long term investor.  but i think this is a bad time to buy, personally.

if you have a LONG time line where the investments can just grow, i totally disagree

take GE for an example....$ 27.xx a share today     probably 10% frothy (my max buy price would be at $ 24.xx right now

but unless something drastic happens (BP event), this company is worth $ 50 10 years from now

forgive me for saying so, but that ROI is not acceptable.  at least to me.

and while you own it, they pay you around 2% a year in dividends just because.....

and there are hundreds of companies like this....steady growth, steady dividends, great balance sheet

could the market correct, and the stock be at $ 16-18 next week?

sure.....and i would be buying more of the company

it sure in the hell beat 2.8% yield on a 10 year treasury note.....

i am not talking about investing in fixed income long term, bro.

interesting....an approximate 85% return in 10 years not counting dividends isnt acceptable?

i gotta hear more.....

so....if the market is too frothy for you at these levels (not disagreeing with that btw), where is your "new money" going to?

[djAdvocate]

Dec 18, 2013 12:14:24 GMT -5 @gdgyva said:

Dec 18, 2013 11:56:29 GMT -5 djAdvocate said:

i am not talking about investing in fixed income long term, bro.

interesting....an approximate 85% return in 10 years not counting dividends isnt acceptable?

not to me.

i gotta hear more.....

so....if the market is too frothy for you at these levels (not disagreeing with that btw), where is your "new money" going to?

probably a better discussion for another board?  you tell me......

edit: the "rough answer" is: not in the broader market.

[Deleted]

Fed just annouced tapering and markets are up big....

[djAdvocate]

Dec 18, 2013 14:11:23 GMT -5 @investorbob said:

Fed just annouced tapering and markets are up big....

interesting reaction.  pretty much the opposite of what everyone predicted.

[Deleted]

Well, so much for that idea of keeping new money on the sidelines.  We'll see....

[djAdvocate]

Dec 18, 2013 16:25:10 GMT -5 @investorbob said:

Well, so much for that idea of keeping new money on the sidelines.  We'll see....

i think the initial reaction is "oh goodie, we have a stronger economy".
the later reaction will be "oh crap, we have higher interest rates".

[Deleted]

Yeah, that's why I said we'll see.  But I tend to suck at market timing when I say I'm going to wait....

[Value Buy]

Dec 18, 2013 9:04:22 GMT -5 @gdgyva said:

if you have a LONG time line where the investments can just grow, i totally disagree

take GE for an example....$ 27.xx a share today     probably 10% frothy (my max buy price would be at $ 24.xx right now

but unless something drastic happens (BP event), this company is worth $ 50 10 years from now

and while you own it, they pay you around 2% a year in dividends just because.....

Man I wish that was a true statement.

I held GE when it was at $45 a share under Jack Welch.

Then 2008 happened.

Low teens and no dividends.......

Ain't anywhere being frothy at $27

[Deleted]

Dec 19, 2013 8:42:55 GMT -5 Value Buy said:

Dec 18, 2013 9:04:22 GMT -5 @gdgyva said:

if you have a LONG time line where the investments can just grow, i totally disagree

take GE for an example....$ 27.xx a share today     probably 10% frothy (my max buy price would be at $ 24.xx right now

but unless something drastic happens (BP event), this company is worth $ 50 10 years from now

and while you own it, they pay you around 2% a year in dividends just because.....

Man I wish that was a true statement.

I held GE when it was at $45 a share under Jack Welch.

Then 2008 happened.

Low teens and no dividends.......

Ain't anywhere being frothy at $27

Sorry VB

I know those who rode it all the way down

I started buying at $ 8 a share and stopped at $ 22

my average weighted price is $ 16.xx

they just raised dividend again.....

when you look at it from my perspective....the stock is a big WINNER

when you look at it from the people that bought it at $ 70, not so much

GE Capital nearly killed this great company.....

I tend to stay away from banks, airlines, and car companies......nothing but trouble for me over the years

I own one regional bank.....none of the mega ones.....