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Lost Decade For Stocks? Wait Till You See This at Trader’s Narrative





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Guest Post by Robert Folsom

A well-known business magazine recently published a story with this headline:

Stocks: The “Loss” Decade
A disastrous ten years for the stock market ends in just a month. Will the turning of a new decade change investors’ luck?

One sentence from the story itself tells you most of what you need to know: “The ten years since Y2K are on track to produce the worst total returns for investors since the 1930s.”

Of course, no one should really be surprised by a story that says the stock indexes did poorly over the past decade. That’s not news. The facts in the article more or less repeat what our own Elliott Wave Financial Forecast reported last March, complete with this chart:

The proof of the market is in its charts. Professional market technicians know something you don’t. A solid grasp of the most successful technical analysis methods can help you cut through the hype and give you the big-picture, unbiased perspective you need now more than ever. You can now download a FREE 50-page Technical Analysis Handbook from the largest independent technical analysis provider in the world. Learn more about technical analysis, and download your free 50-page ebook.

EWI 10 worst years for stocks

It’s safe to say that this business magazine article is the first of many the media will run before the year’s end, as part of their “decade wrap-up” stories. And like this story, most or all those like will share the same basic assumption: stock investors did poorly because the stock indexes did poorly.

And that assumption, dear reader, is erroneous. The truth is far uglier.

Here’s what I mean. If you want to know how real stock investors really behave, the major stock indexes are the wrong place to look. Published results from firms like Dalbar and Vanguard consistently show that, over the past 25 years, individual investors and mutual fund shareholders have had average returns that are half (at best) of the annual returns of the broader stock market.

So, for example, in 20 years from Jan. 1, 1989 through Dec. 31, 2008, the S&P 500 showed a 8.35% gain (Dalbar). Over that same period, equity investors showed a 1.87% gain. And if you include the 2.89% inflation rate in those years, investors show a 1.02% loss.

You can shift to a timeframe which excludes the bear market that started in 2007, but it doesn’t change the basic story. From January 1984 though December 2002, the Dalbar data shows that equity investors earned an annual average of 2.6%, vs. the S&P 500’s 12.2% annual average. The annual inflation rate for period was 3.14%.

What’s more, similar studies and surveys also show that most investors are overconfident in the decisions they make. Put another way, they don’t even know that they are their own worst enemy.

It can be different for you. Market prices move in recognizable patterns: Those patterns can also reveal specific price levels that help confirm the direction of the trend, or identify the time to step aside. Respecting the price, pattern and trend is the first step toward discipline, instead of yielding to emotions.

The proof of the market is in its charts. Professional market technicians know something you don’t. A solid grasp of the most successful technical analysis methods can help you cut through the hype and give you the big-picture, unbiased perspective you need now more than ever. You can now download a FREE 50-page Technical Analysis Handbook from the largest independent technical analysis provider in the world. Learn more about technical analysis, and download your free 50-page ebook.

Robert Folsom is a financial writer and editor for Elliott Wave International. He has covered politics, popular culture, economics and the financial markets for two decades, via print, radio and the Internet. Robert earned his degree in political science from Columbia University in 1985.

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4 Responses to “Lost Decade For Stocks? Wait Till You See This”  

  1. 1 Nick

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    It’s pretty hard for ordinary investors to follow the usual advice of buy and hold. Because stock prices have become divorced from company earnings and from the real value of companies.

    A lot of companies nowadays lie about their earnings by routinely excluding so called non-recurrent expenses and losses. And a lot of companies have stopped paying dividends to investors altogether.

    You can’t even compare present-day P/E ratios to historical P/E ratios of 1930s, 1960s, and 1970s. Because at that time the so called Operating Earnings haven’t yet been invented by overly clever accountants and company managers seeking big bonuses for themselves. Reported Earnings is all they had at that time. And now nobody talks about Reported Earnings. Operating Earnings is what everybody is using now.

    And when stock prices aren’t related to any real yield or the earnings of companies. Then there is no objective way to valuate stocks. Stock prices now depend on people’s imagination and willingness to play the casino game that the stock market has become.

    Prices like that can fall apart literally on any trading day. And that’s why so many investors don’t feel comfortable with buying stocks and holding them for the long term.

    Stocks have become gambling chips that often have no real value to investors, except their re-sale value to someone else. And counting on someone else to be a greater fool than you are is always risky and hard to do.

  2. 2 ILIAN

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    Investing is all mathematics and nothings else !!! That’s the reason why NOBODY has ever come close to the performance of ED SEYKOTA (30 years , average 60% a year net of fees ). forget fundamentals …dig in math and you can find the truth ;)

  3. 3 Tyler

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    Ilian - just wondering where you are getting those returns on Seykota. Even if you just invested $1,000 with returns like that, you would have $1,129,227,996. If you invested just $5,000 you would have over $6.6 billion.
    This guy was also managing money for other people, so he would probably have a lot more than just that. I would also imagine that he is investing more than just the original $1,000 or $5,000.
    Forbes 400 richest americans has a minimum of $950 million. He doesn’t show up on that list.
    I’m just saying, the guy is probably not poor. But 60% annually for 30 years…

    Anyways, you get the point.

  4. 4 ILIAN

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    please ask Michael Covel regarding ED SEYKOTA …who is he and what is his performance www.michaelcovel.com

    more about THE MASTER SEYKOTA - http://www.turtletrader.com/trader-seykota.html

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