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Stingy Investor Tip Sheet

Get A Grip

The markets hit new lows on Monday and there was a great deal of talk about a decade of lost returns. That got me thinking. How did returns adjusted for the impact of inflation fare?

I picked up Robert Shiller's monthly S&P500 real price data and updated it to the close of February 23, 2009. You can see a graph of the data below where I set the 0% gain line at the February 23 price.

Based on monthly real price data for the S&P500, we were last at similar levels in the summer of 1995 not including reinvested dividends. Dividend reinvestment would present a cheerier picture.

But what would happen if we're in the middle of a repeat of the 1929-to-1932 crash where stocks lost 80.6% in real terms from peak to trough?

Well, just take a look at the red line on the graph which shows the 80.6% price decline level from the peak in the fall of 2000.

Should such an event occur, we'd hit very similar price levels on the S&P500 as we did near the lows in 1982 and near the peaks in 1929. That'd make it almost a lost century for the S&P500.

Sure we had a big bubble in 2000, but does a repeat of the 1929-to-1932 crash appear to be a likely scenario? Not really.

(click for larger version)


The 1929-32 loss was corrected from 86.1% to 80.61%. The extra 0 was lost in transcription. The text and graph were modified slightly to reflect the change.

02/25/2009   5:30 PM EST   Permlink   save & shareMarkets

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