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| Was That Really a Bull Market? | | Published by: webmaster 2008-10-11 |
| | USATODAY.com - Looks like a bear market for 2-D animation::
Big-budget 2-D disappointments such as Treasure Planet have led to morale-depleting layoffs, salary cuts for artists and the closing of Disney animation
http://www.usatoday.com/life/movies/news/2003-10-28-2d-animation_x.htmHOME |
Recently in the news I have noticed many articles being writen about the so-called 5 year bull market.It rasies an interesting question. Can you really call such a short term rally a true bull market? One of the problems with looking at the market with such a short term view is we fail to see the true picture. Let me explaine.
I liken it to the horse wearing blinders effect. Not that I get out to the horse races much but if you have ever been to one you will notice that they put these things called blinders on the horses eyes so they will not get distracted during the race. Sometime our gut reactions as humans make us act just like those horses wearing blinders and we tend to see only what has happened lately. This is exactly the case of the mythical 5 year bull market and this phenomenon can be very dangerous to the novice as well as the experienced investor. Let me explain.
First lets look at this so called bull market and why it has been deemed as such. Going back about 5 years ago to September 30, 2002 the S&P 500 closed at 827.37. Flashing forward just a little over 5 years to October 8, 2007 the S&P closed at 1,554.41. When you ad that all up it equals an attractive annual growth rate of 14.19% per year. Wow you might say, whats wrong with 14%, sign me up! The problem is no one is telling you the entire truth. In fact this is a dangerous story if market makers and mutual fund promoters use this information to influence countless investors to invest in the market without considering the true risks and the effects these risks will most likely have on their returns. Lets take our blinders off for a moment and consider the long term implications of this mythical market.
Asia Times Online :: Asian news and current affairs::
May 3, 2006 All three buildings were conceived in the bull market and built heart that was never really in the job, or gross incompetence - or both.
http://www.atimes.com/atimes/Global_Economy/HE03Dj01.htmlHOME |
Bay Area Housing Bubble: Gold: in a bull market::
But what's so interesting about the ongoing gold bull market is that neither the public nor the funds have entered the picture. In fact, most people really
http://bayarearealestatebubble.blogspot.com/2007/03/gold-in-bull-market.htmlHOME |
What if we were to go back just 24 months to the year 2000. In fact lets go back to January 3, 2000 when the S&P 500 index closed at 1,441.47. Lets assume that this just so happened to be the date that you decided to invest your hard earned money into the market. Would you still be up 14.19% per year on average? Hardly. In fact you would have spent two years with a stomach ache watching your money decline as the market dropped to the bottom on September 30, 2002. In fact you would have lost 42.6% of your investment. Could you afford to lose that much money in so short a time?
But some may argue that this was only a paper loss and if they would just hang in there until the market rebounded they would be fine. The truth is the market did rebound but with what effect?
If you would have invested your money directly in the S&P 500 on January 3, 2000 to October 8, 2007 for a little over 7 years your compounded annual growth rate would have been .96% during the entire period. Not even one percentage point.
CNNSI.com - Pro Football - Dr. Z's NFL Mailbag: Bear market ::
M.D. wants to know if I was really in the joint, and if the food really as starchy as they say." (No, the last bit is my own.) Yes, I was.
http://sportsillustrated.cnn.com/football/news/2001/07/19/drz_mailbag/HOME |
Now that is a market that suddenly does not look so bullish does it? And all we did was look back an additional two years. What if we looked ahead?
What would the S&P 500 Index have to do over the next two to three years so that by 2010 this investor would actually be able to justify all of the risk that he/she just took over this 10 year period?
If by the year 2010 the market increases by 50% this lucky investor will have an effective 10-year rate of return of a whopping 4.20%!
The truth of the matter is that the next 3 years have to be incredable just to provide long term investors with somewhat competitive results. Returns that they could have otherwise achieved with much less risk and much more certainty.
So while the 5 year bull market did happen for a lucky few, chances are if you have been a long term investor over the last seven years you have barely broke even. How much better off could you have been if you had invested in safer, less volatile, or even risk free alternatives. Before you get ready to listen to the market makers or mutual fund marketers make sure you know the facts. Dont get sucked into the hype of the mythical 5 year bull market. If you are not sure exactly how well your investments are doing you may want to seek out the assistance of a qualified advisor who can tell you not just what your fund has averaged over the last 5 or 10 years but who can help you analyze what your true return has been and if you are as far ahead as you think or if it may be time to reevaluate your holdings. While blinders may work well for horses they can be devastating to investors.
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