Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Which version is correct?

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Few months back in a book that I forget the name of, I read that it took equity investors of 1929, using S&P yardstick, 25 years to break even, i.e until 1954 to make the money back they lost.

Today, I saw a PPT forwarded from someone a slide in which sort of contradicted the above assertion, that was presented by Samir, that S&P returns were ~4x during this period. The context of the presentation was equity as an asset class in comparison with other asset classes, that point was made appropriately. However, its another proof on how statistics can be deceptive.

Non-Inflation

Source: https://iaip.files.wordpress.com/2018/12/Presentation-by-Samir-Arora.pptx

In my previous post, Fooled By Charts, https://lifeandequities.wordpress.com/2018/12/25/fooled-by-charts-before-after/ I mentioned how unwise it is to assume that S&P delivered 300X in the previous century whereas, it actually returned ~17X only, and that, long term (multi-decade charts) should be

A) Inflation adjusted

B) Log scale adjusted

Here is that chart post adjustment.

Inflation-Adjusted

When you invest in frontier markets, you should not be impressed with the stocks that have been 10X in the previous decade, the reason being, there could have been an incidence of hyper or excess inflation in those economies, masking the real return.

Over the previous 148 years (1870 to 2018) S&P has returned 4% CAGR, adjusted for inflation or 25x, but if you do NOT adjust for inflation, the return vaults to 500X, a twenty fold multiple.

148 years s&p.JPG

 

 

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

http://www.equityadviser.in/

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

Written by amitdipsite

December 28, 2018 at 5:40 pm

Posted in Uncategorized

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