STOCK MARKET WATCH -- Friday, 10 March 2023

[progree]

11. "Vegas slot machine ... a tiny 'I told you so.'"

Last edited Sun Mar 12, 2023, 12:23 PM - Edit history (3)

I have no power to affect the markets ... But I have no faith in them at all and consider them as much a gamble as a Vegas slot machine. It's all rigged in the house's favor. Will I cheer if/when the whole house of cards collapses? No, because I know it will be painful for a lot of people. But I may sneak in a tiny "I told you so."

Yes, the market periodically goes down, some times very steeply. To take the 3 steepest pullbacks since WWII: In '73-'74 we had a 48% drop from peak-to-trough, and it took 7.5 years to recover from that and reach a new high. In the Dotcom bust we had a 49% drop and a 7.2 year recovery time. In the Housing Bubble bust it fell 57% and took 5.5 year to recover.

I guarantee plunges of this depth will happen again. Crashes happen and will continue to happen. I too will join you in telling anyone who doesn't think a crash will ever happen again, "I told you so".

I don't think predicting a crash is any more insightful than predicting that some day there will be a solar eclipse. I don't know anyone who thinks a crash will never happen. Everyone knows it will happen. Personally I think stock valuations are way high and we're plenty ripe for one.

But even after a 50% or 60% plunge, I will still have a bigger nest egg as a long-time buy and hold equity investor. Why? Because after 2 or 3 doublings (meaning a 4 fold or 8 fold increase), a 50% plunge still leaves me with a 2 fold or 4 fold increase.

Nothing holds up as well in the face of withdrawals and inflation than does equities, except perhaps real estate. In other words, it's an even bigger gamble to not have a sizable proportion in equities.



Over the past 20 years, it has grown 6.37 fold, an average annual increase of 9.7%/year
(had the market crashed 60% in 2022 -- a worst crash than any of the post WWII crashes -- then it would have still grown 3.11 fold, an increase of 5.8%/year)

Over the past 50 years, it has grown 131 fold, an average annual increase of 10.2%/year
(had the market crashed 60% in 2022, then it would have still grown 64 fold, an increase of 8.7%/year)

and so on. I'd go to Vegas a lot if I could average these kinds of returns.

This is from the below link, which also has similar for bonds, Treasury bills, and gold. These don't come close to matching the increase in equities.
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

And I'm not just cherry-picking the boom periods. The above is inclusive of all periods, down, up, flat.

And when the market recovers and goes on to set yet more new all time highs, I will say "I told you so" to anyone who thinks it will never recover.

The market periodically sets new all time highs. It has never set an all-time low.

Yes it goes up and down and up and down and ... but the pattern is that new lows are higher than the previous lows and new highs are higher than the previous highs.

What really matters as far as risk is the risk of running out of money in retirement, and that risk is much higher for people who don't have any equities and only rely on "safe" fixed income investments, which don't even keep up with inflation. Innumerable historical simulations in innumerable studies have shown that. IOW its a bigger gamble not to be in the market. I don't wish to take that gamble.

I hate to see my fellow progressives misled by anti-equity JackPineRadicals-style "progressive" malarkey and end up having to live a very financially constrained old age, not to mention having very little or nothing to give to Democratic candidates or progressive causes. And by default having to accept the minuscule interest that the banks usually dole out in savings and CDs and so on.

"and consider them as much a gamble as a Vegas slot machine."

Only a fool gambles with their retirement security -- And it makes DU investors out to be fools because only a fool would wager their retirement security on a Vegas slot machine. We are not fools. In the face of inflation and withdrawals, it's an even bigger gamble to NOT have a sizable proportion in equities.

"Will I cheer if/when the whole house of cards collapses?" No, because I know it will be painful for a lot of people."

Yes, a lot of people. 58% of American adults own stock according to a Gallup Survey, 3/5/23 https://www.msn.com/en-us/money/savingandinvesting/only-15-of-american-families-directly-own-stock-and-that-s-okay/ar-AA188NL7
pointing to the detailed report at https://www.fool.com/research/how-many-americans-own-stock/

And if the big crash happens on President Biden's watch, it will be super-painful for everyone to the left of Attila The Hun come the next election and the 4 years after.

Edited to add 1205pm ET: I wish someone could tell me which "Indian casino" gives its clients on average a 223% cumulative return over 10 years, a 537% cumulative return over 20 years, a 1,444% cumulative return over 30 years, a 6,759% cumulative return over 40 years, a 13,016% cumulative return over 50 years, a 33,400% cumulative return over 60 years, and a 120,090% cumulative return over 70 years, because I sure would like to "gamble" there. The equity market is AN INVESTMENT.

What drives the market is earnings (not "luck" or the pull of a slot machine handle ). This from Peter Lynch in 2001:

Since World War II, despite nine recessions and many other economic setbacks, corporate earnings are up 63 fold and the stock market is up 71 fold. Corporate profits per share have grown over 9% annually despite the down years. Nine percent may not sound like a lot but consider that it means that profits mathematically double every 8 years, quadruple every 16, are up 16 fold every 32 years, and are up 64 fold every 48 years."