Link to this article on Seeking Alpha
Dow 1 Million Before My Kid Retires - Seeking Alpha
Sunday, December 2, 2007
Dow 1 Million, before my son retires
Before you dismiss that as an absurd, attention grabbing headline (it is), allow me to present a few facts and assumptions, and the objective of this story. I assure you that by the end of it, you will agree with me, statistically speaking.
First, the objective of this exercise: to focus you to think long term and realize the power of compounding. Nothing new here, but when you do a few extrapolations, the numbers may amaze your perspective.
Second, the facts: the Dow has returned about 8% historically since 1928.
I crunched DJIA data from 1928 through 2007 during which it has gone from 300 to 14,000 (chart 1).
The annualized rate of return has varied based on the time span you use, as you can see in the chart below, but it is about 8% for the 80 year period. And that’s conservative. The annual returns for the post-war period are more like 12%.
The S&P has also returned an annualized 8% for the past 57 years, and a little over 5% (annualized) for the past 100.
Third, the assumptions: this is where it gets tricky. Agreed that past performance is no guarantee of future results, but the idea of taking large spans of time for the returns above was to smoothen out short term volatilities, depressions, recessions, irrational exuberances, boom and busts etc. You get the idea. Also (being the optimist that I am), I have assumed that we – as in mankind – don’t nuclear-wipe ourselves out or choke the planet. And if we hit the Singularity in 2050, then all bets are off.
So I am going to assume that the market will return a conservative 8% over the next couple of decades. Put another way, it means that the Dow will double every 9 years. Ah ha! With me so far?
The rest is merely extrapolation. Starting with a 14000 Dow in 2008, you can see below that the Dow will hit a million by 2064 (at the risk of dating my son, he will retire in 2070)! But wait, go out a bit more and you have a 10 million Dow by 2094. (chart below)
Do you think this curve is irrationally steep? I thought so too. So I put the past and future 80 year periods on the same chart with a log scale. Now do the next 80 years look like the past (chart below)?
So what do I recommend? Invest periodically with a discipline (don’t try to time the market), and be in there for the long term (as far as you can afford to). Even if you are a passive investor in a Dow or S&P ETF, you will do fine in the long run. And, if I am not wrong, stocks have historically returned more than real estate. Now you may sleep better too.
Disclaimer: the author is “long” the market
First, the objective of this exercise: to focus you to think long term and realize the power of compounding. Nothing new here, but when you do a few extrapolations, the numbers may amaze your perspective.
Second, the facts: the Dow has returned about 8% historically since 1928.
I crunched DJIA data from 1928 through 2007 during which it has gone from 300 to 14,000 (chart 1).
The annualized rate of return has varied based on the time span you use, as you can see in the chart below, but it is about 8% for the 80 year period. And that’s conservative. The annual returns for the post-war period are more like 12%.
The S&P has also returned an annualized 8% for the past 57 years, and a little over 5% (annualized) for the past 100.
Third, the assumptions: this is where it gets tricky. Agreed that past performance is no guarantee of future results, but the idea of taking large spans of time for the returns above was to smoothen out short term volatilities, depressions, recessions, irrational exuberances, boom and busts etc. You get the idea. Also (being the optimist that I am), I have assumed that we – as in mankind – don’t nuclear-wipe ourselves out or choke the planet. And if we hit the Singularity in 2050, then all bets are off.
So I am going to assume that the market will return a conservative 8% over the next couple of decades. Put another way, it means that the Dow will double every 9 years. Ah ha! With me so far?
The rest is merely extrapolation. Starting with a 14000 Dow in 2008, you can see below that the Dow will hit a million by 2064 (at the risk of dating my son, he will retire in 2070)! But wait, go out a bit more and you have a 10 million Dow by 2094. (chart below)
Do you think this curve is irrationally steep? I thought so too. So I put the past and future 80 year periods on the same chart with a log scale. Now do the next 80 years look like the past (chart below)?
So what do I recommend? Invest periodically with a discipline (don’t try to time the market), and be in there for the long term (as far as you can afford to). Even if you are a passive investor in a Dow or S&P ETF, you will do fine in the long run. And, if I am not wrong, stocks have historically returned more than real estate. Now you may sleep better too.
Disclaimer: the author is “long” the market
Thursday, May 31, 2007
Emerging Market ETFs: A Look Under the Hood - Seeking Alpha
Emerging Market ETFs: A Look Under the Hood - Seeking Alpha
When you are holding a mix of funds, it is very important to know what your net exposures are to specific countries, sectors, asset classes etc. Else, you could be overweight in some areas while thinking that you are well diversified.
This is look-under-the-hood analysis is similar what fundpeek.com does.
When you are holding a mix of funds, it is very important to know what your net exposures are to specific countries, sectors, asset classes etc. Else, you could be overweight in some areas while thinking that you are well diversified.
This is look-under-the-hood analysis is similar what fundpeek.com does.
Tuesday, May 29, 2007
China's Olympian stock-market sprint - MSN Money
China's Olympian stock-market sprint - MSN Money
More speculation in the China market...
More speculation in the China market...
Thursday, May 24, 2007
Hunt on for new investment play as BRICs crack | Reuters.com
ANALYSIS - Hunt on for new investment play as BRICs crack Reuters.com
With investor risk appetite showing few signs of waning and many emerging markets promising sustainable economic strength, the hunt is on for other combinations of countries to tap into.
... Goldman has gone as far as identifying what it calls the Next 11 or N-11. It comprises Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey, Vietnam.
... VISTA - Vietnam, Indonesia, South Africa, Turkey and Argentina
With investor risk appetite showing few signs of waning and many emerging markets promising sustainable economic strength, the hunt is on for other combinations of countries to tap into.
... Goldman has gone as far as identifying what it calls the Next 11 or N-11. It comprises Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey, Vietnam.
... VISTA - Vietnam, Indonesia, South Africa, Turkey and Argentina
Sunday, May 20, 2007
FNI: Chindia ETF
Chindia ETF Exposes Investors to 40% of World Population: Financial News - Yahoo! Finance
... [FNI] weighting scheme is an improvement over the market cap weighting of the iShares India ETN (INP), where about 35% of the basket goes to three companies; Infosys, Reliance and ICICI Bank. For the China iShare (FXI) the top 5 companies come to about 40% of the basket.
... [FNI] weighting scheme is an improvement over the market cap weighting of the iShares India ETN (INP), where about 35% of the basket goes to three companies; Infosys, Reliance and ICICI Bank. For the China iShare (FXI) the top 5 companies come to about 40% of the basket.
Friday, May 4, 2007
Some more favorites...
Thursday, April 26, 2007
Possible portfolio allocations...
The below are for Alpha generation.
EWM - Malaysia
EEB - BRIC (Brazil, Russia, India, China)
EWJ - Japan
EWO - Austria (Eastern Europe play)
FLATX - LatAm (Latin America)
INP - India
VWO - Emerging Market
Also look into Australia and Singapore.
Other broad allocations (for Beta) are:
S&P 500 ETF such as SPY
MSCI EAFE ETF such as EFA
And some bonds in PRFHX, PHK
Additional disclaimer - though the risk level will vary depending on the percentages in each investment, this is an aggressive portfolio and not recommended for all investors.
EWM - Malaysia
EEB - BRIC (Brazil, Russia, India, China)
EWJ - Japan
EWO - Austria (Eastern Europe play)
FLATX - LatAm (Latin America)
INP - India
VWO - Emerging Market
Also look into Australia and Singapore.
Other broad allocations (for Beta) are:
S&P 500 ETF such as SPY
MSCI EAFE ETF such as EFA
And some bonds in PRFHX, PHK
Additional disclaimer - though the risk level will vary depending on the percentages in each investment, this is an aggressive portfolio and not recommended for all investors.
A Gassy ETF Comes To Market - Forbes.com
A Gassy ETF Comes To Market - Forbes.com
...nearly half of last week's inflows to Asia (excluding Japan) equity funds were accounted for by Singapore Country ETFs and funds, which remain on a tear, and Australia Country ETFs and funds also accounted for a significant share...
Keep in mind that Japan still accounts for just over 40% of Asia's total market value, so if you invest through a broad-based Asia-Pacific ETF, your portfolio performance this year will be pulled down by Japan's weak performance.
...nearly half of last week's inflows to Asia (excluding Japan) equity funds were accounted for by Singapore Country ETFs and funds, which remain on a tear, and Australia Country ETFs and funds also accounted for a significant share...
Keep in mind that Japan still accounts for just over 40% of Asia's total market value, so if you invest through a broad-based Asia-Pacific ETF, your portfolio performance this year will be pulled down by Japan's weak performance.
Tuesday, April 24, 2007
Smart Money Flows Into Tech - Forbes.com
Smart Money Flows Into Tech - Forbes.com: "...global equity funds and ETFs have received $57 billion year-to-date, which is 3.3 times the $17 billion year-to-date inflow into U.S. equity funds and ETFs. Since the beginning of 2006, a staggering $232 billion has poured into global equity funds and ETFs--4.1 times the $56 billion inflow into U.S. equity funds and ETFs."
Reasons to Worry About China Stocks
Reasons to Worry About China Stocks
Some technical patterns that point to a near-the-peak Chinese market.
Some technical patterns that point to a near-the-peak Chinese market.
Monday, April 23, 2007
China ETFs: Bubbling Up: Financial News - Yahoo! Finance
China ETFs: Bubbling Up: Financial News - Yahoo! Finance
...any number of things can start the trouble: the Chinese banking system is famously riddled with non-performing loans. Property values have skyrocketed in comparison with wages. Chinese borrowers in Shanghai now regularly commit over over 50% their earnings to paying mortgages. Capital in China is often allocated for social and political reasons rather than economic efficiency.
The artificially undervalued yuan skews the economy to export, depressing domestic demand... the yuan remains 40% or more undervalued. The positive side of this for investors is that yuan-denominated assets will be worth more as the yuan is allowed to appreciate. The risk is that so-called hot money is already chasing this trade.
...any number of things can start the trouble: the Chinese banking system is famously riddled with non-performing loans. Property values have skyrocketed in comparison with wages. Chinese borrowers in Shanghai now regularly commit over over 50% their earnings to paying mortgages. Capital in China is often allocated for social and political reasons rather than economic efficiency.
The artificially undervalued yuan skews the economy to export, depressing domestic demand... the yuan remains 40% or more undervalued. The positive side of this for investors is that yuan-denominated assets will be worth more as the yuan is allowed to appreciate. The risk is that so-called hot money is already chasing this trade.
Thursday, April 19, 2007
VWO - Vanguard Emerging Markets ETF
VWO - Vanguard Emerging Markets ETF
Good ETF for exposure to Korea (15%), BRIC (40% in Brazil, Russia, India, China), and 20 other countries. Low expense ratio (0.30%). I am long VWO.
Good ETF for exposure to Korea (15%), BRIC (40% in Brazil, Russia, India, China), and 20 other countries. Low expense ratio (0.30%). I am long VWO.
Wednesday, April 18, 2007
PHK - PIMCO High Income Fund - another place to park money
PHK - PIMCO High Income Fund
Good for some relatively low-risk income. Has a 9+% yield. Invests in the upper tier of the below investment-grade (a.k.a. "junk") credit spectrum , average rating BB. Average duration is less than 5 years.
Good for some relatively low-risk income. Has a 9+% yield. Invests in the upper tier of the below investment-grade (a.k.a. "junk") credit spectrum , average rating BB. Average duration is less than 5 years.
Sunday, April 15, 2007
Analysts see Latin American stocks moving higher | Reuters.com
Analysts see Latin American stocks moving higher Reuters.com
Hmm... increasing chatter about LatAm. And new market highs there.
Hmm... increasing chatter about LatAm. And new market highs there.
Friday, April 13, 2007
ETFs: The Funds from Outer Space: Financial News - Yahoo! Finance
ETFs: The Funds from Outer Space: Financial News - Yahoo! Finance
Good primer on ETFs - basics, pros and cons etc.
Good primer on ETFs - basics, pros and cons etc.
Wednesday, April 11, 2007
Brazil stocks rise to record; Mexico stocks close at record high
Brazil stocks rise to record
Mexico stocks close at record high
Lot of chatter (and record highs) about Latin America recently. Is the party over? (I have been long FLATX for a few years)
Mexico stocks close at record high
Lot of chatter (and record highs) about Latin America recently. Is the party over? (I have been long FLATX for a few years)
PRFHX - Where to park money
PRFHX - T. Rowe Price TAX-FREE HIGH YIELD
Yes, its high yield, but it averages about 6+% tax free returns, with low risk ("junk" municipal bonds). Its not a bank deposit, but I prefer it over places such as ING Direct etc. Credit for this tip goes to my close friend, Shirish Jamthe.
Yes, its high yield, but it averages about 6+% tax free returns, with low risk ("junk" municipal bonds). Its not a bank deposit, but I prefer it over places such as ING Direct etc. Credit for this tip goes to my close friend, Shirish Jamthe.
GLOBAL MARKETS-World stocks recover their February/March losses | Reuters.com
GLOBAL MARKETS-World stocks recover their February/March losses Reuters.com
Buying when the market dipped in end Feb 2007 helped.
Buying when the market dipped in end Feb 2007 helped.
Saturday, March 31, 2007
The Shanghai Stock Index Bubble: Financial News - Yahoo! Finance
The Shanghai Stock Index Bubble: Financial News - Yahoo! Finance
Interesting (but long) article about the interplay between the Chinese market, money supply, foreign currency reserves and the like.
Interesting (but long) article about the interplay between the Chinese market, money supply, foreign currency reserves and the like.
Tuesday, March 27, 2007
Investing in India: Can Market Timing Help?: Financial News - Yahoo! Finance
Investing in India: Can Market Timing Help?: Financial News - Yahoo! Finance
Market timing won't help in the long term (10 years).
Market timing won't help in the long term (10 years).
Sunday, March 25, 2007
Comparing India Funds: INP is the Way to Go: Financial News - Yahoo! Finance
Comparing India Funds: INP is the Way to Go: Financial News - Yahoo! Finance
INP is my favorite for investing in India (I am long INP).
INP is my favorite for investing in India (I am long INP).
Thursday, March 1, 2007
Tuesday, February 20, 2007
Wednesday, February 7, 2007
GLOBAL MARKETS-World stocks near record levels
Time for a correction in a few months?
GLOBAL MARKETS-World stocks near record levels
GLOBAL MARKETS-World stocks near record levels
Wednesday, January 31, 2007
International ETFs: Correlations with Broad U.S. Market: Financial News - Yahoo! Finance
The China stock market has much lower correlation with broad the US market than India. EAFE, Europe, Latin America and India have the highest correlation with the US market. Emerging markets, Pacific Ex Japan, Japan and China have the lowest correlation with the US market.
International ETFs: Correlations with Broad U.S. Market: Financial News - Yahoo! Finance
International ETFs: Correlations with Broad U.S. Market: Financial News - Yahoo! Finance
Saturday, January 20, 2007
Wednesday, January 10, 2007
Subscribe to:
Posts (Atom)
