Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Fooled by charts: BEFORE / AFTER

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When you date a girl (BEFORE) and then get married (AFTER), the experience varies, its all good because you get exposed to your own shortcomings 🙂 necessary for your growth.

I have been deluded by the charts on two counts:

A) I thought that bear markets typically last 1/3rd of bull markets in duration.

B) I have also been convinced that stock market index returns 100 x over the life time of an individual.

Both the above statements are broadly correct but not if you try to probe further into them.

When you scrape a little deeper and try to find the adorable pancreas (or kidneys for that matter) under that pretty face, you can’t find, they aren’t adorable, beauty is skin deep 🙂

Once adjusted for:

A) Inflation

B) Use Log scale

The picture doesn’t look pretty as they show in BEFORE / AFTER advertisements. In fact, it has the reverse effect.

before_after

BEFORE Simple Dow Chart show 295x returns.

Dow was trading circa 71 in 1915 to 21000 today, WOW! 295X.

Who doesn’t want to make 295X or even more by ‘better than index’ stock picking. Punjabi might say SADKE JAWAN meaning I am in awe or breathtaking.

BEFORE_DOW

AFTER, let us look beneath the surface and gradually take the first layer off, lets adjust the chart log scale on Y axis, after all, earning 50$ on 500$ is not the same as earning 50$ on 50,000$.

DOW_LOG

AFTER, now adjust for inflation. Buying 1 Liter of milk in 1980 at 0.25 INR is not the same as buying it in 2018 for 70 INR. Returns from DOW are now a humble 11X over a 100 year period from 1915 (1700) to 2018 (21000). Looking this the enraged punjabi might say  KANJAR MARJAANEYA, FITTEMUH CHAPPED MAARAN? , meaning “you jerk (and other expressions that do not have an equivalent english counterpart) shall I slap you for deluding me with the first chart”.

DOW_Inflation

Inflation and Log adjusted Bear Market chart shows bear markets last a decade or longer every 10-20 years.

bear market

http://www.elevendimension-funds.com/

http://www.equityadviser.in/

Please do your own due diligence and consult your investment adviser.

Written by amitdipsite

December 25, 2018 at 3:38 am

Posted in Uncategorized

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