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Here's What Happens When You Buy Stocks At Their All-Time-Highs

Tyler Durden's picture




 

Submitted by Simon Black via Sovereign Man blog,

One of the great myths about investing that we’re told by the mainstream investment education is that we should “buy and hold” for the long term.

I remember being taught in a personal finance class long ago that I should just buy the S&P 500 index, walk away, and that years later I will have achieved huge gains.

The premise is that over a long period of time, it doesn’t really matter at what point you get in and out. The long-term trend of the stock market portends that you will make money.

It’s those kinds of investing myths that become axiomatic through repetition. You keep hearing the same thing over and over again and pretty soon people believe it.

Let’s look at the data.

It’s true that stock markets have plenty of peaks and troughs. Going back to the last relative peak, the Dow Jones Industrial Average (DJIA) hit just over 14,000 in October 2007; back then this was an all-time high.

If you had bought the DJIA back then, your return on the increase in share prices through today would work out to be a measly 3.5% on an annualized basis.

If you adjust that for taxes and inflation (even using the government’s own monkey numbers for inflation), you’re looking at a real rate of just 1.2%.

Now just think about everything that you saw in the last 7 years. The volatility. The risk. The turmoil.

Was it worth it? Probably not.

But if we go back further and hold an even longer-term view, the picture must brighten, right?

Let’s go to the peak before that. In early 2000, stocks once again reached what back then was an all-time high.

If you had bought the S&P 500 index back then (which is exactly what I was told at precisely the time that I was told), your annualized rate of return through today would be just 2.17%.

If you adjust that number for taxes and inflation, your real rate of return would be a big fat 0.14%… as in less than 1%. It’s practically ZERO.

Think about what you saw over the last 15 years in the markets—the collapse after 9/11, interest rates cut to zero, interest rates ratchet up again, huge swoons in markets, the credit crunch, Lehman’s collapse, the debt ceiling debacle, etc.

Is all that really worth a return of 0.14% per year? (i.e. 14 cents on every $100 invested)

It makes absolutely zero sense to do this with our money. But that’s what we’re forced into right now with most conventional investments at their all-time highs.

Bottom line—you don’t HAVE to be invested in the market. Sometimes the best investment you make is the investment you don’t make.

The challenge is, of course, that if you’re not invested in the market, your money is just sitting at the bank, earning less than the rate of inflation.

Welcome to the world of mainstream financial options. You’re damned if you do and damned if you don’t.

The conclusion here is very simple. It’s time to move on from the mainstream. There’s too much technology and too many global options now to be lulled into conventional investments that are born to lose.

 

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Fri, 12/05/2014 - 15:31 | 5521392 Richard Chesler
Richard Chesler's picture

Financial speculation is intrinsically a transitory mechanism since it is dependent on confidence, and confidence in the medium run is undermined by the very speculation itself.

Now jump you fuckers!

Fri, 12/05/2014 - 15:59 | 5521506 James_Cole
James_Cole's picture

 

Bottom line—you don’t HAVE to be invested in the market. Sometimes the best investment you make is the investment you don’t make.

The conclusion here is very simple. It’s time to move on from the mainstream. There’s too much technology and too many global options now to be lulled into conventional investments that are born to lose.

Funny, i recall reading this article on zh 3 years ago and 2 years ago and 1 year ago and..

 

Fri, 12/05/2014 - 16:00 | 5521514 sodbuster
sodbuster's picture

Serta Savings and Loan shows just about as good a return.

Fri, 12/05/2014 - 16:21 | 5521603 NoDebt
NoDebt's picture

30 year Treasuries yielding over 3% right now.  Better buy them before they're all gone.

Fri, 12/05/2014 - 16:47 | 5521726 sodbuster
sodbuster's picture

I'm waiting for the 100 year bonds to come out- maybe they'll pay 3.5%!!!

Fri, 12/05/2014 - 22:47 | 5522824 tvdog
tvdog's picture

While you're waiting, why not snap up some of those BBB- rated Italian bonds? You can get 1.4% on them.

Fri, 12/05/2014 - 20:48 | 5522522 pachanguero
pachanguero's picture

can we push them?

Fri, 12/05/2014 - 15:32 | 5521395 qqqqtrader
qqqqtrader's picture

LMAO, you would not only buy the all time high once in their lifetime, many people buy each week/month through their 401K... what a BS article.

Fri, 12/05/2014 - 16:01 | 5521520 James_Cole
James_Cole's picture

Simon is trying to explain that the trick is to ONLY buy at the high, like his comrades consistent advice on... other things. 

Fri, 12/05/2014 - 16:27 | 5521633 Greenskeeper_Carl
Greenskeeper_Carl's picture

No one is right all the time, and I do enjoy reading a lot of Simons articles, but I can't help but laugh sometimes when I read their shit after all they hyped up Argentina. Doug Casey is even worse. USA might be heading down the shitter, but anyone who listened to them about that place probably wants to junk punch them both.

Fri, 12/12/2014 - 22:07 | 5547124 neuronius
neuronius's picture

Ooh that reminds of that Adam Sandler chick flick, Junk Punch Love.  Seen it?

Fri, 12/05/2014 - 20:11 | 5522411 lotsoffun
lotsoffun's picture

see my post.

and if we take out the last year of completely exponential growth (thanks to 4.5 trillion printing) -

'income average' investing sucks compares to bonds - except one thing.

THEY MADE SURE TO KILL BONDS (or holding cash or money markets) SO YOU HAVE TO BUY STOCKS.

sorry for the caps, but i want to get this thru to people.

in the end, when?  maybe even a year, 2, 5 the rape will be evident.

 

 

Sat, 12/06/2014 - 20:06 | 5524666 Dark Space
Dark Space's picture

Bless your heart, you think bonds=US Treasury's, and probably believe all bond prices go up with drops in interest rates.

 

Fri, 12/05/2014 - 15:31 | 5521398 Bell's 2 hearted
Bell's 2 hearted's picture

Bagholder?

Fri, 12/05/2014 - 15:34 | 5521401 kaiserhoff
kaiserhoff's picture

OT  TAWANA BRAWLEY REDUX********

Rolling Stone just admitted that the alleged University of Virginia gang rape NEVER HAPPENED.

This repeated slander and hate mongering is one of many reasons the New York Media has to die a well deserved death.

Fri, 12/05/2014 - 15:45 | 5521448 madcows
madcows's picture

but hey, there's al sharkton in the backdrop for every race baiting opportunity he can work his self into.

jerkweed should be in jail getting sodomized by ferguson prison gangs.

Fri, 12/05/2014 - 15:55 | 5521498 neuronius
neuronius's picture

This has been timed perfectly to foment as much racial tension as possible.  

Fri, 12/05/2014 - 16:02 | 5521524 nuubee
nuubee's picture

In fairness to the eastern orthodoxy of our great lady mass media, Rolling Stone only admitted that their witness isn't being consistent. They still believe that gang rape happened, because well, rape culture.

I think if a rape culture existed in the West, we wouldn't have any male loners who buy weapons and shoot up public places, because they would be so oversexed they wouldn't have the strength to snap in the magazine.

Fri, 12/05/2014 - 16:15 | 5521582 kaiserhoff
kaiserhoff's picture

I know the police chief in Charlottesville.  No rocket scientist, but an honest Dude.  Not a politician.

I was pretty sure the thing would blow up as soon as a real investigation started. 

Fri, 12/05/2014 - 16:47 | 5521720 XqWretch
XqWretch's picture

Women have two options according to the mainstream think tanks in this shithole country:

A: Scream "rape" anytime a guy so much as looks at you

B: Make your man deserve you

A + B = C: unprecedented number of males simply giving up on women

A + B + C = demographic nightmare... "bring in dem brown skins from down south!"

Fri, 12/05/2014 - 15:33 | 5521406 Cursive
Cursive's picture

Why play poker in a rigged house?

Fri, 12/05/2014 - 15:33 | 5521407 Q-Q-Q
Q-Q-Q's picture

It's like buying an aeroplane at 36,000 ft.

Fri, 12/05/2014 - 15:39 | 5521428 tarsubil
tarsubil's picture

With an empty fuel tank.

Fri, 12/05/2014 - 15:43 | 5521434 Winston Churchill
Winston Churchill's picture

Malaysian ?

Fri, 12/05/2014 - 15:52 | 5521480 Uchtdorf
Uchtdorf's picture

Over Uraine.

Fri, 12/05/2014 - 15:53 | 5521482 Uchtdorf
Uchtdorf's picture

With snakes and Samuel Jackson on it.

Fri, 12/05/2014 - 15:53 | 5521484 Uchtdorf
Uchtdorf's picture

And Stewart Payne apparently dozing peacefully in the seat next to you.

Fri, 12/05/2014 - 15:58 | 5521504 Government need...
Government needs you to pay taxes's picture

Might as well have some fun and glide for the nearest pentagonal building. . . 

Fri, 12/05/2014 - 16:20 | 5521594 Ahoy Polloi
Ahoy Polloi's picture

I sseug you must be cixelsyd

Fri, 12/05/2014 - 15:33 | 5521410 Doom and Dust
Doom and Dust's picture

Equities equal healthcare and pensions. Oldies better take the hit now. It'll be harder if they don't, and they'll be older.

Fri, 12/05/2014 - 15:41 | 5521416 KurtRand
KurtRand's picture

This is kind of a pointless article.

If you wouldve bought at a historical high,  your returns would have been close to zero. So what? ZH has been preaching and yelling that we at a high the last 5 years and it hasnt turned out to be so! Today could be a high or it couldnt.

The point is look at your portfoilio and if you decide you want 50% exposure to US equities, Dollar Cost Average over about a year or two until you reach 50%.

As anyone here can tell you, good luck calling a high or a low. Can NOT be Done

Fri, 12/05/2014 - 15:46 | 5521445 Keltner Channel Surf
Keltner Channel Surf's picture

As Keith Richard(s) said in 1967, "We'll never be this high again"

Fri, 12/05/2014 - 16:00 | 5521519 new game
new game's picture

or was that 1970's, hehe...

bout "let it bleed" timeframe, ha, ohuuuu that smell!

jumpin jack it 

s only rock and angie rolled over...

Fri, 12/05/2014 - 16:06 | 5521538 Keltner Channel Surf
Keltner Channel Surf's picture

Heh-heh.  Still think it was the 60s (more smashed than high in the 70s), but was so severe it took nearly another decade for him to be "Comin' Down Again"

Fri, 12/05/2014 - 16:10 | 5521558 2500saturdays
2500saturdays's picture

Thats the year silver was removed from our coins and the 100th BD for the nation. Now 'they' cannot afford to put Cu into pennies and 'it's gone'

Fri, 12/05/2014 - 20:07 | 5522394 lotsoffun
lotsoffun's picture

another pointless article by simon black.  i wish it was not, and i wish the people that are 'experts' to educate the rest of us that are dummies would actually educate us and not pump their own agenda.

SIMON -

you apparently have access to all the statistics.  here is the real question!  let's see if you can spin out those numbers.

supposing i had invested $100 dollars of each my paychecks beginning in (for us old guys) every week, for 52 weeks a year and had not touched the money, in DOW or S&P, what was my actual return (including dividends):

1980

1985

1990

1995

2000

2005

2010

?

(my suspicion is kids - it really aint' as great as they spin it.)

 

Fri, 12/05/2014 - 15:45 | 5521443 Hohum
Hohum's picture

What's the opportunity cost of investing in stocks?  Simon Black, you're rich, have fancy jets, probably hot babes, too.  What should I invest in?

Fri, 12/05/2014 - 16:04 | 5521534 Ironmaan
Ironmaan's picture

"First you should invest in my newsletter"

Fri, 12/05/2014 - 15:45 | 5521444 Batman11
Batman11's picture

It is one of those statements that used to be true but no longer.

Look at stock markets prior to 1999 and the long term investment strategy holds true.

Since 2000, don't bother.

 

 

Fri, 12/05/2014 - 15:46 | 5521453 Bastiat
Bastiat's picture

What happens? You make money as it continues to make new all time highs, fed by central bank printing. 

--I write that as one who has NOT played, dammit.

Fri, 12/05/2014 - 15:47 | 5521461 Moe Hamhead
Moe Hamhead's picture

Let's see--- Buy!, Sell!, or do nothing!

Wake me when it's a sure thing.

Fri, 12/05/2014 - 15:47 | 5521463 swmnguy
swmnguy's picture

This also assumes no dividends.  If you're thinking buy-and-hold without regard to dividends, yes, you would be an idiot.

But what exactly is Simon suggesting as an alternative?  Joining him for a life international intrigue and mystery, for profit?  Writing a subscription-newsletter?

Fri, 12/05/2014 - 15:49 | 5521465 Inthemix96
Inthemix96's picture

When your government is a lie, based on fabrication, when your monetary system is a lie, based on slight of hand, then outright fabrication, and when the value of your labour is robbed from you not just through the script they force you to use, but at the point of a gun, what the fuck does it mean being robbed one more time through buying stocks at their all time highs then?

Why is the USA in $18 Trillion worth of debt?

Why is England in £1.6 Trillion worth of debt?

Printed from mother fucking thin air, with interest added my friends????

Your life is a lie, just as is mine.

Withdraw your consent, implied or otherwise.  In everything you do, every day, about everything you can.  Call their bluff.

Lets bring this fucking shitshow down, and lets give these nation wrecking cunts war, but on our terms.

Global, stop this shit, non-compliance.  Do not consent.

;-)

Fri, 12/05/2014 - 16:17 | 5521587 F.A. Hayek
F.A. Hayek's picture

I want to buy you a beer.

Fri, 12/05/2014 - 15:52 | 5521481 neuronius
neuronius's picture

I invest in my own small telecom equipment and services business, and put my savings into physical PMs.  I keep enough cash for operations and look at buying PMs as taking money out of circulation.

This is the best way I know how to insulate myself from all of the counter-party risk associated with investing today.

Fri, 12/05/2014 - 15:55 | 5521485 Q-Q-Q
Q-Q-Q's picture

Buy and hold......the baby until it's a teenager to get your money back.

Financial advice offered by the USA, a division of the Goldman Sachs group of companies.

Fri, 12/05/2014 - 15:57 | 5521501 kchrisc
kchrisc's picture

"Buy and hold,"

Notice the comma. Many miss it, but it's there.

The text after the comma says, "so we can take our time fleecing you."

An American, not US subject.

 

The next sentence says, "Only buy paper gold and silver, as the physical is ours."

Fri, 12/05/2014 - 16:04 | 5521531 Idaho potato head
Idaho potato head's picture

Goldman holds the baby till it's a teenager then rents it till it's too old to be profitable and then sells it.... Multiple times.

Fri, 12/05/2014 - 16:10 | 5521556 Frank N. Beans
Frank N. Beans's picture

Simon, let us know the next time you're buying into the market, because that's when i'm getting out.

 

Fri, 12/05/2014 - 17:01 | 5521776 Ahoy Polloi
Ahoy Polloi's picture

He'll get back 2 u as soon as his plane lands on the Tarmac in Gstaad & he can get a signal

Fri, 12/05/2014 - 16:11 | 5521563 Maplehood
Maplehood's picture

Tip: Buy stuff they're not making any more of

Land, gold and silver

Fri, 12/05/2014 - 16:14 | 5521570 p00k1e
p00k1e's picture

Always use a broker you can blame.

‘I think in all fairness, I should explain to you exactly what it is that I do. For instance tomorrow morning I'll get up nice and early, take a walk down over to the bank and... walk in and see and, uh... if you don't have my money for me, I'll... crack your fuckin' head wide-open in front of everybody in the bank. And just about the time that I'm comin' out of jail, hopefully, you'll be coming out of your coma. And guess what? I'll split your fuckin' head open again. 'Cause I'm fuckin' stupid. I don't give a fuck about jail. That's my business. That's what I do. ‘

- Nicky Santoro:

Fri, 12/05/2014 - 16:31 | 5521642 mpath
mpath's picture

That is pretty much what we have been saying. Big picture folks will get crushed--when--who know and who cares. When the market is providing us with 400 point move down/up in less than 3 months--let those big picture guru's keep guessing whether we are heading to 5000 or 500 on the spx.

 

Me-just follow Woody Dorsey--the stock market shrink--he will let you know when those big moves are coming--weeks before they hit.

http://www.sentimenttiming.com/success-stories/

 

Fri, 12/05/2014 - 17:07 | 5521796 NaiLib
NaiLib's picture

why not organize a refusal to pay car loans? Would love to see them repo all of them :):)

Fri, 12/05/2014 - 16:31 | 5521648 Spungo
Spungo's picture

This is what happens WHEN YOU FIND A STRANGER IN THE ALPS!!!

Fri, 12/05/2014 - 16:41 | 5521683 Atomizer
Atomizer's picture

Dear Federal Reserve, IMF, UN, and Bank of International Settlements.

 

Something has gone wrong with your reality TV program ratings. Suck it up cunts! Glad I grew up in my era. No regrets.

Clan Of Xymox |Something's Wrong

 

Do you know me now?

When I let you fall

Do you know yourself?

When you’re going down

Do you know enough?

When you hit the ground

Do you feel the pain?

When you’re coming round

 

Enjoy.........

Fri, 12/05/2014 - 16:41 | 5521692 alexmark2013
Fri, 12/05/2014 - 17:09 | 5521805 Atomizer
Atomizer's picture

Short lived excitement.

Fri, 12/05/2014 - 22:07 | 5522744 Bumbu Sauce
Bumbu Sauce's picture

DOW 18,000 is surely going to ruin the financial security of a great many people.

Sat, 12/06/2014 - 20:25 | 5524733 Tom Green Swedish
Tom Green Swedish's picture

We are nowhere near the high.  Dow through manipulation is going to 30,000 in the next 2 years.

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