When stockmarkets don’t go up

Posted by robin in Financial Articles Thursday October 16, 2008 2:05 pm

Hang on and you should be fine, right?

Stock markets rise over the long term and usually give a better result than bonds and cash.

But in these days when the long shadow of the ‘29 Crash and the Great Depression looms ever larger in our minds, a sobering statistic from online know-all Wikipedia…

After a five-year bull run where stocks quintupled, the Dow Jones index hit a peak of 381.17 on September 3, 1929.

How long did it take to regain that peak? A year, two years…five perhaps..?

 Try 25 years.

Yes, it did not climb that hill again until late 1954, says the Wiki.

American economist Richard Salsman commented: “Anyone who bought stocks in mid-1929 and held on to them saw most of his or her adult life pass by before getting back to even!” A mighty slap in the face to the faithful buy and hold investor, though dividends over the period may have provided some compensation.

With that thought in mind, how long has it been since the all time highs were hit for some of the major indices? A quick check gives us a broad range:

FTSE 100 - hit 6,950 on 30 December 1999 - near 9 years ago

German DAX - hit 8,076 on 12 December 2007 - near 1 year ago

Dow Jones - hit 14,164 on 9 October 2007 - 1 year ago

Nikkei - hit 38,916 on 29 December 1989 - near 19 years ago

Skipping swiftly past the more technical aspects of nominal and inflation-adjusted highs the one that really stands out as the eminence gris is the Japanese Nikkei, which today is still near 80% below its peak.

Back in the ’80s everyone marvelled at the Japanese miracle and the Japanese way of business was fashionable. Now it’s their example of a lost decade of deflation and rotten banks stuffed with dud assets that spring to mind. So anyone brave enough to buy into Nikkei stocks in January 1990 and continue holding, is still waiting to get back to even. And from where the Nikkei sits today at 8,458, it is going to have to rocket up more than 360% to do so.

Stocks generally go up in the long run but it is not a given. As the old Keynes chestnut goes, in the long run we are all dead. So, it’s just possible an investor can die in the waiting.