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The Least Boring Statistics You’ll Ever Read

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…that is if you care about your money.

I love to read. What started as something I completely dreaded when in high school is now my second favorite thing to do besides hang out with the wife and kids. (Brownie points headed my way). Most of the time the motivation for these articles come from questions I receive through meetings with clients, however this week I’m going to share an article I grabbed from a website: www.theirrelevantinvestor.com

Michael Batnick works for a firm in New York named Ritholz Wealth and hosts the above website. These guys produce some great stuff both, on their website and respective podcast. His article last week was titled “The Twenty Craziest Investing Facts Ever”, and there are some great stats that I want to share with you and add my thoughts in italics.

  1. Since 1916, the Dow Jones Industrial Average (DJIA) has made new all-time highs less than 5% of all days but over that time it’s up 25,568%.
    • Markets don’t move in a straight line. It doesn’t sound like a good battle when 95% of the time it feels like you’re not winning, but the results speak for themselves.
  2. The DJIA has compounded less than 3 basis points a day since 1970. Since then it’s up more than 3000%.
    • 3 basis points is 3/100th of 1% or 0.0003%. It doesn’t sound like much, but with compounding your $10,000 in 1970 is now worth over $360,000 without adding another penny out of your own pocket.
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  3. The DJIA has only been positive 52% of all days. The average daily return is 0.73%, when it’s up and -0.76% when its down.
    • Expect down days. You don’t need to get it right all the time. Just get the odds in your favor.
  4. The DJIA has been over 40% below the highs more than it’s been within 2% of the highs. (20.6% of days v 18.4% of days).
    • The author described this as “no pain no gain”, I would tell you that as long as we remain a capitalist society the economy and markets will come back.
  5. The DJIA rose 38 points in the 1970s.
    • Sounds dismal, the DJIA at the start of the 70s was around 800. So, it made a 4.75% through that time. Historically low, but set up for the big returns of the 80s.
  6. Why am I using the DJIA instead of the S&P 500? They’re effectively the same thing. The rolling 10 one-year correlation since 1970 is 0.95.
    • Couldn’t disagree more with this comment. The author’s argument is that the DJIA and S&P 500 are within 5% of each other on average. We can see what effect a small move can have over time in the long run. I’ve written about this previously, too many points for this article.
  7. At the low in 2009, U.S. stocks were back to where they were in 1996.
    • On the surface sounds right, however I think the author is quoting an intraday low and high number. Dividends have not been taken into account, but the fact remains we are playing the long game.
  8. At the low in 2009, Japanese stocks were back to where they were in 1980.
    • I believe it. Again, see notes above. Also, Japan is a 7.61% weighting to the MSCI Developed market index. You don’t put your eggs in one basket, especially smaller baskets. I’m sure some of the emerging markets fared even worse.
  9. U.S. one-month treasury went 68 years with a negative real return.
    • Author note, “what’s safe in the short run can be risky in the long run”. Agreed, purchasing a one-month treasury is not investing in my opinion. It’s a place to park cash.
  10. At the bottom in 2009, long term U.S. government bonds outperformed the stock market over the previous 40 years.
    • You can manipulate returns by adjusting the start and finish date. Long term bonds treasuries in the 80s were yielding 15%. That’s higher than the long-term average of any of the stock market indexes.
  11. Gold and the DJIA were both 800 in 1980. Today Gold is around $1300 per ounce while the DJIA is near 26,000.
    • Gold is not a long-term investment strategy.
  12. Over the last 20 years gold is up 340%. DJIA is up just over 200% with dividends.
    • I’ll reference my earlier comment on start and finish dates. In 1999 gold was just under $300 in Sep 2011 it was just under $1900. Today around $1300.
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  13. Since 1980 Gold is up 153%. Inflation is up 230%.
    • That’s a real negative return, but again, date manipulation helps.
  14. Commodity Trading Advisors index gained 14% in 2008 when stock indexes were down 37%, since then they’re up 2.5%, DJIA is up near 300%.
    • Asset classes that do not correlate with stocks can help balance an overall portfolio.
  15. If you invested for 1960 – 1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980 – 2000 and underperformed the market by 5% a year.
    • The timing of your investments matters; however, I always tell clients our investing timeline is a minimum of your life expectancy.
  16. The DJIA lost 17% in 1929, 34% in 1930, 53% in 1931 & 23% in 1932.
    • The author said be grateful. I’ll say regulations help steady the waters. I might not agree with most of them, however the resources for fiscal policy are much greater today than any time in history.
  17. Warren Buffett is the greatest investor of all time. In the 20 months leading up to the dotcom peak, Berkshire Hathaway lost 45% of its value, the Nasdaq gained 225% over the same period.
    • I don’t think we can argue who won the marathon!!!
  18. Only 47.7% of stocks generated a lifetime return that match one-month treasury bills.
    • I’m not sure if the author is using stocks in a particular index, however I’m not surprised at all by this number. There is a business cycle and all companies will go through it, the question is, how long will it take to go through it.
  19. Dow earnings were cut in half in 1908, the index gained 46%.
    • There is a huge differential in market returns and the economy, however I will say that it all comes back to earnings in the long run.
  20. In 1949 the stock market was trading at 6.8x earnings and had a 7.5% dividend yield. 50 years later it reached a high of 30 times earnings and carried a 1% dividend yield.
    • The 50-year cycle finishes at the top of the dotcom peak. However, I would argue as I’ve written previously that multiples should go up as more growth orientated stocks make up the index.

Some pretty cool and humbling stats. As you can see, numbers can be manipulated to look good or bad. The power of compounding and a long-term strategy moves the percentages towards the investor.

With that here’s the buy/sell

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Source: MG&A

As always please feel free to call with any questions.

https://www.msci.com/world
https://theirrelevantinvestor.com/2019/03/13/the-twenty-craziest-investing-facts-ever/
http://observationsandnotes.blogspot.com/2010/11/100-years-of-bond-interest-rate-history.html

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as "The Dow" is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

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