mark04
Banned
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- Oct 12, 2009
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Its Time to Buy
Even though stocks had already fallen dramatically since the October 1929 market crash, investors who bought in January 1931 were down another 71% by May 1932. This goes to show how difficult it is to time market bottoms, and it demonstrates that even though stocks have fallen considerably, they could still fall even more.
That's actually not so bad …
The good news is that it doesn't much matter whether you accurately time the bottom.
See, conventional wisdom holds that the Depression was a bad time to be an investor. Excitable market commentators like to cite the statistic that it took until 1954 -- 25 years! -- for the market to return to its 1929 levels.
That figure is true, but misleading. It assumes that investors put all of their money into stocks just before the market crash, stopped purchasing stocks thereafter, and never collected dividends.
Remember, we're now 14 months into this recession -- not at its starting point. So for the sake of symmetry, let's ask how long it actually took new money invested 14 months into the Depression (January 1931) to break even. The answer is less than five years. And an investor who continued to purchase stocks on a monthly basis would have broken even in little more than two years.
Even though stocks had already fallen dramatically since the October 1929 market crash, investors who bought in January 1931 were down another 71% by May 1932. This goes to show how difficult it is to time market bottoms, and it demonstrates that even though stocks have fallen considerably, they could still fall even more.
That's actually not so bad …
The good news is that it doesn't much matter whether you accurately time the bottom.
See, conventional wisdom holds that the Depression was a bad time to be an investor. Excitable market commentators like to cite the statistic that it took until 1954 -- 25 years! -- for the market to return to its 1929 levels.
That figure is true, but misleading. It assumes that investors put all of their money into stocks just before the market crash, stopped purchasing stocks thereafter, and never collected dividends.
Remember, we're now 14 months into this recession -- not at its starting point. So for the sake of symmetry, let's ask how long it actually took new money invested 14 months into the Depression (January 1931) to break even. The answer is less than five years. And an investor who continued to purchase stocks on a monthly basis would have broken even in little more than two years.
