The S&P During Times Of Economic Uncertainty

valueinvesting
investing

#1

I’ve been interested in this idea of risk and unforeseen risk. I picked up The Black Swan by Nassim Taleb in a book shop yesterday and watched his lectuers today and found some of his stuff really interesting…

I think the reason why it interests me is that we are living in an enormous debt bubble that has been growingt since the 1970s. Private debt is approaching levels not seen since after the second world war…

…so even if an unforeseen war didn’t break out, or anything blackswan occurred, the numbers really don’t look great…

For this reason, I’m not going to be looking into stocks for the moment. Buffett is right in saying that compounded stock market returns will crush gold in the long run. But I’m pretty comfortable pulling out of stocks, seeing as gold performed similarly to stocks in last 20 years…

In long run, I agree with Buffett though…

That got me thinking, what happened if you held onto stocks during times of extreme turmoil in history - how would you have done. This isn’t a reasearch paper, so the answers won’t be that advanced. But here are a few of my observations…

• The longer you stay in the market, re-investing your returns, the higher chance you have to make a profit…

• The longer you are in the market, re-investing your dividends, the better you will do. Over the very long-term, it’s almost impossible to lose money (as long as you stay full invested in the mindset that you could hold onto stocks for another ten years). If you sell your stocks, or take out your pension in the time equivalent of March 2009 (lowest stock prices in last ten years), you are bound to do badly…

• Holding cash during high valuations. No need to sell everything, just keep saving ash if stocks get too expensive…

If you had invested at the beginning of 1920 and held stocks until 1930 and re-invested your dividends, you would still done reasonably well…

Id you had been fully invested in 1925 and kepy re-investing your stocks until 1935, you would have also survived with nearly a 50% profit.

In both cases, you would not have done half as well if you had abandoned your plan…

It just shows you the power of re-investing dividends…


#2

I wonder what the differences is including inflation?

Still though, I don’t think inflation was a problem in the 1930s, it was more about deflation if I am not mistaken…