Posted on 08/01/2002 6:08:37 AM PDT by SJackson
Edited on 04/22/2004 11:46:50 PM PDT by Jim Robinson. [history]
When our book, "Dow 36,000," was published in September 1999, the Dow Jones Industrial Average stood at 10318. The Dow closed yesterday at 8736. What went wrong? Actually, nothing. Despite its flamboyant title, "Dow 36,000" was a book of sober explanation, not of wild prognostication. We calculated that 36000 was the point at which the 30 stocks that comprise the Dow Industrials would be fully valued, and we warned that "it is impossible to predict how long it will take."
(Excerpt) Read more at online.wsj.com ...
In the short view you're right. But your assumption is only valid in a permanent downward trend. The fact is the market goes up over time. Thus, the best time to buy with dollar cost averaging is as the market is trending down, because history says it will recover.
What a bunch of jack-asses. They were wrong. Sure, someday the Dow will reach 36,000. In fact, I predict that someday the Dow will be 100,000.
Right. If you buy 30 stocks and hold them for 30 years, some of them will go bankrupt. However, that does not happen for the S&P 500 because S&P boots stocks out of the S&P 500 when they are tanking. Therefore, using the S&P 500 as an indicator of long-term performance is wrong due to selection bias.
Who cares. Retirement is for wimps. Until the 20th Century, only the lazy, super-rich retired. Who needs it - my grandparents and the rest of my ancestors didn't - neither do I.
No permanence is required. Dollar cost averaging makes sense only when two necessary conditions are met: (1) one is not good at calling tops or bottoms (in individual stocks or indices,) or is not advised by such a person, and (2) the trend over your investment time horizon is up.
"history says it will recover"
I agree it will recover. But that is not the issue. Saying that it will recover is nothing more than a statement that the country will not vanish off the face of the earth. The issue is: will it recover over most people's investment horizon?
History actually gives us very few independent data points on which to base faith in the vaunted "long term." Ten to twenty, at most. Not enough on which to bet the farm.
Strangely, people's confidence in trends over various timescales is inversely proportional to the amount of available data.
And I guess it's how you, as an individual, perceive things going.
You wrote:
(1) one is not good at calling tops or bottoms (in individual stocks or indices,) or is not advised by such a person
My grandfather, who I didn't have the opportunity to meet, was a margin officer for one of the major brokerages in Chicago in the 20s and 30s. In those days it was a position of some repute, because he was essentially deciding who the brokerage would lend money to, often using nothing more than a hunch.
My father told of his father sleeping in the office during the darkest days of the crash of 1929, and had a memorable anecdote about advice on stocks and why he never gave it.
It seems my grandfather was reasonably successful with his own investments, and was often asked for investment advice.
"I never will give it', my father quoted him as saying. "Because if I'm right they'll say, 'I told him what I wanted and he bought it for me', and if I'm wrong, it'll be 'that SOB lost all my money'"
My father didn't give investment advice either.
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