S&P 500 gains since 1966

S&P 500 in 1966: 93.3 S&P 500 in 2009: 756
CPI Deflator in 1966: 31 CPI Deflator in 2009: 211
S&P 500 annualized capital gain in the last 43 years, inflation adjusted: 0.44%
per year.
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John Boggle might disagree.
Wes -- "Additionally as a security officer, I carry a gun to protect government officials but my life isn't worth protecting at home in their eyes." Dick Anthony Heller
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On Fri, 13 Mar 2009 19:03:00 -0500, Ignoramus32252

----------- Good point. The only nit to pick is 42 v 43 years, depending where you start counting.
Just consider how well our athletes would appear to be doing if the length of the foot had decreased by a factor of 6 in 42 or 43 years. We would now have people running the mile in under 40 seconds....
For table of CPI-U values ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt 1966 annual average 32.4 2009 January 211.143 [latest available]
211.143/32.4 = 6.516759259
1966 S&P in Jan2009$ = 93.6 * 6.516759259 = 609.9686667
gain 1966 to 2009 in CV(Jan2009$) = 756 - 610 = 146
2009 - 1966 = 42 years depending how/where you start
146 / 42 = 3.476936508 S&P units per year. 1966 base in 2009$ = 609.9686667
% gain/year = 3.476936508/609.9686667= 0.0057 = 0.57%/year
However this neglects the value of the dividends received and the possible gains that an investor could have received with a DRIP [dividend reinvestment program] over the 42 years.
Other factors not considered are the tax effects when the companies in the "averages" or indexes, merge, liquidate, split, etc.
Still, this does indicate the very serious skewing effect that inflation has on the general impression of long-term "progress" when using dollar denominated measures such as the S&P or Dow.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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Ignoramus32252 writes:

Actually it is far, far worse, because losers in the index are replaced with winners after the fact. Like they took AIG out of the DJIA. Extinction bias and winner-picking fallacies in the extreme.
And nowadays there aren't even any winners to pick.
Long-run stock market returns converge to the probability that men are immortal and entropy is decreasing. Sooner or later every human enterprise vanishes, and the "miracle of compound interest" cannot resurrect the dead.
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Richard, I believe that S&P can be replicated and they replace companies with an advance warning. I remember how one ocmpany whose shares I own, was added to S&P, we had quite a bit of advance notice.

Yep, in the long run we are all dead. Period from 1966 to 2009 can cover someone's entire career period.
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Ignoramus11807 writes:

Define "replicated". The index does not count the transaction costs of its occasional changes, making it impossible to replicate. Index funds impose compounded burdens like management fees that are not counted in the index. Even if you could replicate, you cannot correct the retrospective-winner-picking fallacy embodied by the index, that the index bears no information for the future. It is a trick that any long- run return has any predictive significance.

Yes, and it almost covers mine (counting the legacy of my thrifty investing parents), but again, to choose any period is to make a retrospective selection that does not predict the future.
Compounding this fallacy of winner-picking in index components, is the winner-picking of *which index* to pick, which is why there are so many indexes.
Here is the essence of the current crisis: the financial industry must segregate its affairs into enterprises that concentrate on boring/safe/trustworthy/modestly-profitable work (banks) versus risky/speculative/highly-profitable (stocks and bonds). Banks are supposed to be the reservoir of non-risk. When they breach that barrier, the course to systematic collapse is inevitable. With that principle in mind, it is easy to see the events which have led to this crisis.
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On Sat, 14 Mar 2009 14:54:04 -0500, Richard J Kinch
<snip>

<snip> ---------- If not the crux of the matter, certainly enough to *GREATLY* limit the damages.
This remains just as true today as it was in 1933 when Glass-Steagall was enacted, mandating/enforcing such a separation. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services, and was based on exhaustive investigations into the causes of not only the 1929 stock market collapse, but also the collapse of the banking industry.
Glass-Steagall was repealed in 1999 by The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub.L. 106-102, 113 Stat. 1338, opening up "competition" among banks (BoA, Citi, Chase), securities companies (Merrell, Lehman Brothers, G/S) and insurance companies (AIG, MBIA, AMBEC). http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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On Sat, 14 Mar 2009 02:43:52 -0500, Richard J Kinch

===========And I'll bet you don't believe in Santa Claus or the Easter Bunny either..... :-(
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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If the s&p 500 index out performs most money managers, where do you put your savings? Obviously a savings account isn't it.
Wes
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S&P 500 paid decent dividends along most of the way, and so it still returned better than a savings account, with inflation taken into account. If you sold some when it was expensive, and bought some when it was cheap, you would have done somewhat better.
I am reading a book from 1999 right now that is called "Dow 36,000", makes a funny reading. Its authors believed, due to their double counting math, that stocks were worth several times more than Dow 11,000 implied.
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On Fri, 13 Mar 2009 19:03:00 -0500, Ignoramus32252

Iggy. Was '66 a down or up year for the Index? That is are we comparing two bottoms or a top value to a bottom value?
Is there a better place to put savings where it will beat inflation?
For anybody above the lowest tax bracket, stocks are a better place to save than a savings account for tax reasons alone since stocks are taxed at a lower rate than dividends in order to encourage people to invest in our companies.
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On 2009-03-14, GeoLane at PTD dot NET <GeoLane> wrote:

Well, S&P did beat inflation very handily, it did not lose value from 1966 until now, and paid decent dividends (that you would pay some taxes on) during all this time. Your capital would be devastated if you kept it from 1996 until now in a bank account.
But the return was not nearly as stellar as some rah-rah books might make us believe.

You mean, dividends are taxed at lower rate than interest income, right?
It is true now, but I think that it was not the case in the past.
Anyway, I think that despite the not so stellar return from 1966 to now, an investor can do much better than that by buying low and selling high, for example I think that now is "low" and whenever the stocks get too expensive it is high. A good sign of them getting too expensive is abundance of speculative IPOs of dubious quality. I do not know of a good sign of prices being very low. Just a big decline is not necessarily enough.
The difficulty with this approach is that when you buy low, you can never time the bottom, and the times are scary (like now), and when you sell due to prices becoming too high, you can miss a lot of upwards action.
So if you buy, say, now, the market could go even lower and make you feel bad.
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On Sat, 14 Mar 2009 10:49:30 -0500, GeoLane at PTD dot NET <GeoLane at PTD dot NET> wrote: <snip>

<snip> ----------- While widely touted, "investment" as used here is another word/mind game. When you by a stock or bond on the secondary markets you are investing in the "market" and not in a company.
Strictly speaking the only time buying a stock invests a dime into a company is at the IPO. After that it is simply speculators swapping stocks back and forth, with *NONE* of that money going into a company for investment, economic expansion and job generation. {question -- why then are secondary market sales/speculation subsidized by the tax payer by the lower "capital gains" rates? As this is not generating any "economic added value" shouldn't the rate logically be *HIGHER* not lower?}
Even with an IPO, a significant fraction of the money is "creamed off" by the underwriters, and even more is skimmed by the people that got stock options before the IPO [such as high level employees and venture capitalists] in that the money that is raised by the sale of their stock goes to them and not the company. The money [and the capital gains tax rate] received by the executives and V/C may well be justified as they did create the company, but it should not be confused with "investing" in the company, as the company doesn't get a penny of it.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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F. George McDuffee wrote:

Companies issue stock both before and after IPO (initial public offering.) Sometimes the shares are skimmed by underwriters and sometimes they are not. The overall concept of companies issuing more stock is called stock dilution and is discussed somewhat in wikipedia:
<http://en.wikipedia.org/wiki/Stock_dilution
IPO is *not* the end of issuing stock for most companies.
In addition, a company takes a certain amount of its profits and uses them to expand and grow. A stock has a book value:
<http://en.wikipedia.org/wiki/Book_value#Stock_pricing_book_value
By owning shares, the shareholder is part of this investment process as well.
-Wayne
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Wayne, You aren't related to the late Ed are you?
JC
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On Sat, 14 Mar 2009 10:47:40 -0700, "Wayne C. Gramlich"

-------------- You are of course correct, but try to put things in perspective.
If 99.99% of "investing" is in the secondary market with *NO* money going to the corporations/companies involved, why concentrate on the tiny exceptions, particularly when these are mainly reserved for the insiders, e.g. IPO allocation? This is another case of letting "the tail wag the dog."
Anyway you slice the baloney [bulloney?], purchasing stocks in the secondary market is an almost total delusion, if you think you are somehow "investing" in a company, when you are actually buying chances in a rigged lottery.
In theory your statements

are correct, but in practice appear to be non-operational.
As recent events have shown, most such "investments" have proven to be highly speculative financial manipulations rather than any reinvestment in the core businesses, frequently based more on short-term tax avoidance/evasion than any real "value added" potential.
You are also correct when you observe that a stock has a "book value."
It is preciously the calculation of "book value" that is causing much of the current market turmoil under the "mark to market" asset valuation rules, and the apparent gross [criminal?] understatement of liabilities, primarily defined benefit pension obligations, "off-the-books" accounting dodges such as "special investment vehicles," "special purpose entities," "conduits," and a huge number of contractual guarantees / co-signed loans for "spun-off" operations. E. g. Delphi, GMAC, and American Axle for General Motors. Derivative [CDS] liability accounting is another extreamly murky area, e.g. AIG.
It is not at all clear why corporations with *NEGATIVE* net values per share in the range of hundreds to possibly thousands [when all liabilities and "mark-to-market" asset valuation are included], with [belated] "going concern" exceptions in their auditors' statement in their annual reports, continue to sell for *ANYTHING*, particularly on the major exchanges such as the NYSE and NASDAQ. If these trade at all, they should be OTC/pink-sheet.
Everything considered, it appears that the lower classes "invest" in lottery tickets, and the middle classes "invest" in stocks.
FWIW -- it appears the literal lottery players may be getting better odds and a more honest game.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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F. George McDuffee wrote:

Thank you.
> but try to put things in perspective.

Agreed. You probably already know the answer to this question. There are enormous benefits to society in the actual creation of jobs, factories, brand names, etc. Of course, recently wall street sort of lost sight of that idea, hence the total mess. The fact that people can make/lose money on the stock market is pretty irrelevant in the overall scheme of things. The fact that people actually have jobs is pretty important to society and the stock market is an important component of creating those jobs.

There is a difference. In a lottery, the pot does not grow. In the stock market, the there is underlying wealth being created over time. (No, I am not talking about derivatives here.)
By the way, most lotteries are pretty rigged already.

There is a real qualitative difference between investing in derivatives and individual stocks. Buying into derivatives is not real investing, whereas I would claim that buying individual stocks is.

You will not find me trying to defend derivatives.

Actually, the middle class mostly invests in real estate due to the mortgage tax exemption for homes. I would modify your statement to say, the lower class "invests" in lottery tickets, the middle class "invests" in real estate, and the upper class "invests" in stocks.

Nah, most lotteries are rigged to favor the outfits that run them. A casino actually offers better odds then the lottery.
-Wayne
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On Sat, 14 Mar 2009 13:40:54 -0700, "Wayne C. Gramlich"

--------- The point here is not an investment in individual stocks, but what the corporate management of that stock does with the corporations' money, raised either from stock sales or "profits," [or even spodulick creation].
As for the tax evasion see http://www.guardian.co.uk/business/2009/mar/13/rbs-tax-avoidance Note that this is *ONE* international bank over *ONE* year, and that the US banks and financial firms seem to be as deeply involved as anyone else.
The available evidence also indicates wide use of "transfer pricing" to conceil/shield "real" profits from US taxes by nominally American corporations such as GM.
FWIW - Individual tax evasion also seems to be rampant. UBS by itself has admitted to abetting up to 20,000 Americans in tax evasion, and there are many other international banks/branches in other tax havens such as Liechtenstein, Aruba, and Macau. http://www.nytimes.com/2008/06/20/business/20tax.html
In too many cases, a stock purchase was a direct derivative play, e.g. AIG, as most of the spectacular "profits" that were driving the stock prices higher were derived from CDS derivatives and other high risk/high leverage activities such as the lower tranches of mortgage backed CDOs purchase with "carry trade" borrowed money.
The corporations that engaged in this activity chose to ignore the catastrophe that occurred to the S&Ls that borrowed short at low interest and lent long at higher interest, when the short term interest rates suddenly climbed, and their depositers left in droves for the money market funds [among other opportunities offering higher returns].
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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On Sat, 14 Mar 2009 11:47:39 -0600, F. George McDuffee

------------ Here is an example of an actual investment into a company. Note this was a direct purchase of stock from the company with the money going to the company rather than the purchase of shares on the secondary market with none of the money going to the company.
==========Abu Dhabi Deal a 'Stroke of Luck' for Daimler
By Hasnain Kazim and Bernhard Zand
Abu Dhabi has bought a 9.1 percent stake in Daimler in a deal analysts say has come at just the right time for the German automaker battling the global economic downturn. The stake is expected to shield Daimler from a hedge fund takeover.
It was the kind of news the German stock market had evidently been waiting for -- after the emirate of Abu Dhabi said on Sunday evening it was taking a 9.1 percent stake in German auto maker Daimler, the stock leapt as much as six percent. By midday on Monday, the stock was still up around two percent. Analysts said the investment by the oil-rich sheikhs would stabilize the Stuttgart-based company which is suffering from the global slump in auto sales. Daimler, they said, had found a new strategic investor with a long-term focus.
While Daimler AG is world-famous, its new shareholder, Arab state fund Aabar, is little known in Germany. The company belongs to a complex web of state-owned and semi-state-owned investment vehicles set up by the sheikhs of Abu Dhabi to multiply their petro dollars.
Aabar is controlled by the state fund International Petroleum Investment Company (IPIC), which has an investment portfolio estimated at more than $14 billion. Daimler could use liquidity at this time of crisis in the global auto sector.
<snip> ------------------- http://www.spiegel.de/international/business/0,1518,615042,00.html
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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On Fri, 13 Mar 2009 19:03:00 -0500, Ignoramus32252
<snip>

<snip> ---------------- FWIW
========Morgan Stanley Says S&P 500 to Drop 25%, Cuts Outlook By Lynn Thomasson
March 13 (Bloomberg) -- The Standard & Poors 500 Index may fall 25 percent in the next few months as earnings slump for a seventh quarter and the recession deepens, Morgan Stanley said. <snip> U.S. stocks are still expensive even after the S&P 500 dropped 52 percent in 17 months, according to a method used by Benjamin Graham, the father of value investing and mentor of Warren Buffett. He measured equities against a decade of profits to smooth out distortions, a method that shows the S&P 500 traded at 14.5 times earnings yesterday, according to data compiled by Yale University Professor Robert Shiller. At the bottom of the three worst recessions since 1929, the average ratio fell below 10. To reach that, the S&P 500 would have to sink more than 30 percent.
Plunge to 560
Should the S&P 500 follow Todds forecast, the index would tumble to 560 and then surge 47 percent to finish 2009 at 825. Wall Street equity strategists lost credibility last year when none predicted a down year and the average forecast was for a gain of 11 percent, according to data compiled by Bloomberg. The stock index plunged 38 percent, the steepest decline since the Great Depression. <snip> ------------- http://www.bloomberg.com/apps/news?pid 601213&sid=aUX5fDy9mtbQ&refer=home
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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