Stocks Suck!

May 1, 2009 by
Filed under: Finances 

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We hear all the time that investing in stocks is the best way to grow your money in a passive way.  Over the long run stocks have always outperformed other asset classes.  hmm…  let’s see:  The Dow Jones Industrial Average (DJIA) closed at around 380 points on August 1, 1929 with a volume of some 3.8 million shares.  80 years seem like long term, right? $1000 invested in the DJIA on August 1, 1929 will be worth today, May 1, 2009 $21, 529 with a volume of around 10 billion shares.  Pretty good.  If we assume a 3% inflation rate for 80 years, it is equivalent to $2029 in 1929 dollars.   The chart on top shows our inflation adjusted grand invested in August 1929, of course backwards.  We doubled our money in 80 years! It doesn’t seem like a lot, now does it?

But don’t worry by July 1954 (25 years later) you will have your $1000 back.  The DJIA closed at 386 points with a volume of  roughly 3.3 million shares.  Of course, discounted for inflation it was really the equivalent of $486 1929 dollars.  By Christmas 1963  the Dow closed at 783 points with an impressive volume of 5 million shares.  You now have $2006 (or $734 1929 dollars), so let’s keep going.  By March  1983, the 1100 points of the Dow meant $3000 ($602 1929 dollars).  In January 1987 (yes 58 years later) you will finaly have the equivalent of $1000 in 1929 dollars ($5600 1987 dollars) just to see the market fail on you by November.  But worry you not, a year and a half  later you’d be back to your grand in March 1989 (2342 points and a volume of 177 million shares).  You’ll be cruising through the nineties to double your money by March 1996 when the volume was reaching half a billion shares and a close 5580 points.  That is really where you are today.  If you’re curious, the memorable peak of December 2007 of 13500 points will have meant roughly $3500 in 1929 dollars.

In my opinion, this is really amazing.  According to Wiki Answers, the base price of Chevy AC coupe in 1929 was $695.  So your humble $1000 could have bought you one with $305 to spare.  Your $21,000 of 2009 may buy you a Pontiac that may soon belong in the Smithsonian.  The Nissan Versa, the least expensive car in the US is worth around $10,000 according to Edmunds.com. so maybe you’re ahead a little bit.  The point is that popular wisdom of investing in an index and forgetting about it may not be the best for your money.  I know, I know, I picked the worst possible date to invest my humble grand, but it makes the point I want to make.  Manage your investments, because if you started in 1999, you’re still behind today.

In case you’re wondering, the volume figures have no influence on the dollar values, but I found extremely interesting that multiple billions of shares change hands every day  just  on the 30 components of the Dow.  The popularization of stocks is amazing, but also dangerous, but that is a topic for a different post.

Enjoy.

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