Dow Jones in Perspective

Much has been made of the recent drop in the Dow Jones Industrial Average to below 10,000. The population is angry because their retirement accounts have taken a hit, and politicians are scrambling to find new ways to use taxpayer money to prop up the market. However, from a long term perspective this drop barely registers a blip. Below is a chart of the DJIA since 1896:


Despite what the compressed chart shows, the latest drop in the Dow is very real. But every few years there comes a reminder for those who have forgotten: if you need that money soon, say within the next five years, the market is not where that money should be. Retirement accounts will recover over time (in fact, they barely dropped if you believe the chart), but for retirement money needed now, or tuition money needed next year, the market has never been the place to be!

This time, the market may be higher than it otherwise would be as taxpayers are helping to mitigate losses because of concerns for the broader economy. But next time, the government may not be able to afford it.

Comments

[investor88:]

Interesting perspectives. The devil is in the details. True stocks are for the long term of at least 5 years out. However, stocks can also be traded with different strategies like those employed by the $2 trillion hedge fund industry.

2008 Oct 09 11:02 AM

[moonbat1775:]

Yes, the devil is in the details. One of those details was World War II caused in part by the Great Depression. I suggest people start considering the roots of the instability in our economic system. I'll give you a hint: It's the government backed fractional reserve banking cartel.

These booms and busts could be the end of us as they were to the 50 million killed in WWII.

2008 Oct 09 11:20 AM

[Jason Rines...:]

That's how I view it as well Investor88. 5 years before we see a new formation of a bull market and more like 8-10 years to see substantial returns. I believe we'll see the stocks dip a little bit more as this panic plays out and a good buying opportunities. I suspect like in historic market crashes there will be short-term rallies. For those with stomach can make money but I do not consider myself an expert and hence will look at the 5-10 year timeline for returns.

2008 Oct 09 11:21 AM

[Indi:]

Yes, that time frame (which I believe should be shortened) in the graph does show a minor blip. But what investors are worried of is what that blip could turn into (i.e. 1928).

2008 Oct 09 11:23 AM

[Jason Rines...:]

History does rythm Moonbat. WWI and WWII both sparked by serious financial crisis. Mankind's future is bright, but large-scale military misadventure in the nuclear age will likely be a problem.

Mankind is on a societal evolution. Each progression from tribes to city-states to nations consolidated through war and reached consensus. The peace in-between each consolidation lasts longer, unfortunately each conflict after consolidation gets bigger.

I do believe there will be a WWIII and it will be the last and final world war. It will not be the end of civilization as many believe.

Listen, live in faith not in fear. We each shall meet our destiny and face death in this era. It is the most exciting time in man's history but as well as the most dangerous. Those in history will be viewing our culture as the most cursed for a very short time but the most blessed to be entering a new era. Call it the 'end of ages' phase. The next phase brings in the longest era of prosperity and peace the earth has ever known and many of us will see it. Enjoy the family and friends and be there for them when the time comes.

2008 Oct 09 11:30 AM

[piedra.j:]

Good chart if you can live more than 100 years -- The perspective does not make much sense. It is similar to Dow 36,000

2008 Oct 09 11:55 AM

[Smarty_Pants:]

Good use of a logrithmic chart for a long time period and a large range of values. Good in a hide-the-truth sort of way.

What is left unsaid is that the market will require another drop of 50% from its current levels just to get back down to the line on your chart. Overshoot an equivalent amount to the underside and were talking about a loss of roughly 80% from the current 'low' levels. That would be about an 86% loss from the peak. You will have to wait for a 600% gain at that point to break even (before considering inflation).

I guess if those kind of losses don't bother you then don't worry. Be happy. As Keynes said, "Long run is a misleading guide to current affairs. In the long run we are all dead."

Just remember that it took almost 21 years to regain the highs of 1929 and 'get even'.

2008 Oct 09 11:55 AM

[GKM:]

The chart needs the volume on there to gain perspective. That demonstrates the amount and size of the pain being felt yet people hold on based on clueless advice. Thanks to 401k accounts etc this time the pain will be more severe than at any other point in history.

If you didn't see the top coming and you're a financial advisor - you shouldn't be. The excuse that you can't time the market is issued by fools to keep their jobs.

2008 Oct 09 01:14 PM

[Roger Knights:]

How good would that chart look if it were adjusted for inflation?

2008 Oct 09 01:20 PM

[Jay Dhruv:]

Saj,

start the graph from 1944 and you will get a more realistic graph. the big drop between 1926 and 1932 unbalances the graph

also at the most data can be relevant upto last 2-3 years
beyond that you cannot relate

2008 Oct 09 09:53 PM