I’ve posted Entry #379 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Your Lifetime Return As a Stock Investor Depends on the Point of the Bull/Bear Cycle At Which You Begin Investing.
Juicy Excerpt: Buy-and-Holders would argue that there is no way to know when those magical time-periods have come to an end and that investors who stuck with stocks from 1982 until today have done just fine. The annualized return for those 36 years is 8.9 percent real. That is indeed a super return. But I cannot help pointing out that most of that super return came from the first half of the 36-year time-period, the half that began with a P/E10 level of one-half of the fair-value P/E10 level. The annualized return from January 2000 forward was only 3.3 percent real. And, in the event that we see a 50 percent price drop in the near future, that would bring the portfolio amount that started at $100,000 a bit below the $1.2 million figure where it stood at the top of the bubble. Stocks can provide good returns even starting from high price levels. But the downside of the investment choice — which virtually disappears at times of super low prices — should become a serious concern at times of sky-high price levels.
So, you’re saying we had 18 years of great returns, followed by 18 years of sucky returns. Which means we’re due for 18 years of great returns! Awesome!
Back up the truck, baby! Uncle Rob says it’s time to load up on stocks!
The 18 years of great returns (1982 through 2000) began with the P/E10 level at 8. The 18 years of subpar returns (2000 through 2018) began with the P/E10 level at 44. And, yes, if the next price crash brings the P/E10 level down to fair-value prices or lower, we will be set up again for a stretch of good-return years.
That’s how it works. The price you pay for stocks determines the strength of the long-term value proposition that you obtain from them. Price discipline is a huge plus when buying stocks, just as it is when buying anything else.
Should we tell people?
Or should we keep the “revolutionary” (Shiller’s word) research findings of the last 37 years bottled up so as not to hurt the feelings of the Buy-and-Holders?
I say that we should tell.
My best wishes to you.
Tale-Telling Rob