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Revisiting The Long Term Bullish Case For Stocks at Trader’s Narrative

In late November 2008, the S&P 500 index was trading at 850, when we looked at a chart of the 10 year rolling returns. The 10 year return back then was -23% - although horrendous, not one of the worst we’ve seen in history. It still made me consider that it was reason enough Why Long Term Investors Should Consider Buying:

monthly rolling 10 year returns sp500 index updated

Flash forward a few months to take into account the continued erosion of the S&P 500 and we have the updated chart above. Using the most current data, we have a rolling 10 year return of -45.67% (not including dividends).

How bad is that? There are only a few months that were worse. And they were all around the 10 year anniversary of the 1920’s top:

  • 8/1/1939 -61.66%
  • 9/1/1939 -59.20%
  • 7/1/1939 -58.88%
  • 4/1/1939 -57.16%
  • 6/1/1939 -56.29%
  • 5/1/1939 -56.24%
  • 5/1/1940 -55.81%
  • 6/1/1940 -55.07%
  • 10/1/1939 -53.91%
  • 7/1/1940 -52.56%
  • 4/1/1940 -51.81%
  • 3/1/1939 -51.28%
  • 8/1/1940 -50.94%
  • 2/1/1939 -50.38%
  • 1/1/1939 -49.72%
  • 3/1/1940 -49.25%
  • 9/1/1940 -48.85%
  • 2/1/1940 -47.03%

The monthly data I used went from January 1st 1910 to present (March 1st 2009) so what we are saw as a 10 year simple rolling return is in the worst 1.5% of months for almost 100 years.

Just imagine the stories you’ll tell your grandchildren about the Great Decession. And all the major players: Madoff, Bernanke, Bush, Obama, Greenspan, etc. These are truly historic times we are living through.

Some have written me and questioned the validity of the original market call back in November 25th, 2008. As way of explanation, let me say first, that unlike a loud TV personality, I don’t pretend to know what the market will do - nor am I claiming that you should in me trust (cough Cramer cough). You should base market decisions on your own due diligence. Taking into account something I write is fine, as long as you do your own thinking afterward.

In any case, I made it clear that this was intended for long term investors. Not traders. Long term investors can still make a killing even if they are off a bit. You are either going to get in early, and share in the continued decline of the market, or you’re going to get in late, and pay opportunity costs. But if your time horizon is 25+ years, you don’t really care about a few percentage points here or there, your aim is to catch the big wave.

Even if you disregard the chart above and the fact that we are going through a rare and magnificent opportunity, you have to sit up and take notice when great market timers like Barry Ritholtz, Doug Kass, Jeremy Grantham, Warren Buffett, etc. turn bullish en masse.

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6 Responses to “Revisiting The Long Term Bullish Case For Stocks”  

  1. 1 Michael Lomker

    This is a wave 4 (sucker’s rally). There’s nothing wrong with being a long-term, long-only investor but there’s also no reason not to research market timers to help you get in and out. Google TimerTrac and check some of them out.

  2. 2 j'adoube

    My litmus test for market intelligence is whether you can spell Warren’s last name correctly.

    You fail.

    [Otherwise, good post].

  3. 3 Babak

    Michael, thanks, I’ll check out TimerTrac.

    j’adoube, cut me some slack, I had just came back from an all you can eat Chinese restaurant! ;-)

  4. 4 W. Peary

    Sentiment has turned rapidly to the bullish camp. Just listen to the callers on Cramer’s show. They’re all afraid of missing the rally. Cramer has turned 180 from saying to stay out with any money you need within 5 years, to all-out excitement to get back into the new bull market. The options data shows this. The VIX has collapsed showing a rapid reversal of fear. In a real bear market bottom, there is an all out hatred of anything having to do with stocks and the market. No one will touch it. CNBC and Cramer will probably be off the air when a real major bottom hits. Whatever this is, it is not a new bull market, maybe only an intermediate rally, or worse just a suckers rally. Be Careful.


    Could you do a 20 year return chart ?
    Ask as saw one on a big webpage, so no easy to send u a link - can if u like though
    It looked a LOT less enticing


  6. 6 Babak

    a 20 year time frame you say? interesting. I’d like to see the link, no sense in re-inventing the wheel. You can send it to me via the contact page.

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