From the “I don’t know what I’m talking about, but look at this pretty chart” files…
Those are stock prices — specifically, the Dow and the S&P 500 — over the last 20 years. Visually, it starts to look a bit like we had 7 or 8 years of genuine growth, followed by Bubble #1 (the tech bubble), then Bubble #2 (the housing bubble), and now Bubble #3 (the stimulus/public-debt bubble)… doesn’t it?
Of course, things could turn around; the run-up to the earlier bubbles included some steep and sudden drops, followed by recoveries so rapid that you don’t visually notice the drops anymore, unless you look for them. Alternatively, it could be that this is only a partial bubble, and the fall won’t be as steep as the previous two. On the other hand, what if — in the absence of a new bubble to halt the collapse of the previous bubble — the fall is steeper?
*gulp* … Panic?!
Original timestamp 12:45 PM; bumped. -ed.]
Main problem with the graph is that linear scale graphs of the Dow are worthless.
http://www.the-privateer.com/chart/dow-long.html gives a nice log scale version
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Matt – do you know if anyone has done anything similar going back to the 1920s and then forward from there ?
http://1.bp.blogspot.com/_i47TEqZoAbw/SWY8vgYWJ9I/AAAAAAAAAC4/3cMHLsnLS7s/s1600-h/Dow+LR+Trend.jpg
It’s not as nice, but it goes back to 1900
Thanks for the links, Matt. Actually, that information is quite revealing about some of the misconceptions having to do with the stock market. Essentially the Dow went nowhere from the late ’60s to the early ’80s despite massive inflation along the way (or maybe because of massive inflation?). Similarly, stock market valuations stalled for a good ten years throughout the Great Depression. When people think about long-term investing, they know that means not day-trading, but I don’t think it sinks in well that riding stocks for the long term means decades if you want to be assured of making money based on stocks’ valuation appreciation. If your outlook is shorter than “decades” but longer than “days” or “months”, it seems far wiser (no pun intended) to focus on a stock strategy that relies on dividends and income generation.