Monday, April 27, 2009

Mark Hulbert Whistles Past the Graveyard

In his column in yesterday's New York Times business section (Strategies: "The Road Back from the '29 Crash Wasn't So Long After All"), Hulbert writes that, although the Dow didn't match its 1929 peak until 1954, investors who bought and held the Dow at its 1929 peak would have been made whole in real terms four and a half years later, thanks to double digit deflation and double digit dividend yields. Of course, today we have a fiat currency and a Federal Reserve committed to fighting deflation, and dividend yields on Dow stocks average in the low single digits, so Hulbert's example doesn't seem terribly apposite.

1 comment:

Paul Price said...

As I noted near the market bottom in early March...

It doesn't really matter whether or when the index makes it back to its old high.

After the DJIA has dropped 50%, even a rebound to just down 25% would give buyers at the low a 50% gain.

100 .........> 50 = -50%
50 .........> 75 = +50%

The DJIA would still be 25% under the old high but investors who bought near the low would not care.

My portfolio has experienced exactly that type move as I was a big buyer in early March.