You're the one who began it by insulting everyone's intelligence and comparing the market to the lottery, which is clearly not the same, stocks relating to ownership of a corporation, and the lottery merely a gamble at winning a quantity of money that was originally derived from the selling of lottery tickets.
My impression is that you made this inane comparison because, being unable to provide a logical argument, you sought the false safety of irrationality.
I don't mind debating and arguing. But I don't suffer inane and irrelevant BS argued merely for the sake of arguing. Pardon me if I was a bit harsh.
Btw, for your perusal and contemplation:
The History of Stocks: A New Interpretation
THE stock market is a money machine: put dollars in at one end, get those dollars and more back at the other end. The history of these remarkable returns is vivid and undeniable, yet few investors seem to be able to make it out in the fog of hourly jabber and the haze of constant fear, and many experts seem always to draw from
the past the lesson that stocks are headed for a fall. Here, instead, are the lessons that we draw from history.
Lesson 1: Stocks have been steady winners through thick and thin.
Imagine that you bought $10,000 worth of stock on the very eve of the Great Crash,
at the beginning of October, 1929. Over the next two months, if you held a portfolio
similar to the modern S&P 500, you would have lost $3,000. It would get worse:
after big losses in 1930, 1931, and 1932, your $10,000 stake would have been
reduced to $2,800.
Naturally, you would have been tempted to sell as trouble brewed in Europe. But if
you had decided to hang on, you would have been rewarded: from 1933 through
1936 stocks enjoyed their best four-year period in history, tripling in value.
Remember that these were some of the darkest times on the planet, with fascism
infecting Europe and Asia, Stalin ruling Russia, bread lines everywhere, and Franklin
Delano Roosevelt forced to remind Americans that "the only thing we have to fear is
fear itself." Yet stocks rose 200 percent.
As the decade wore on, Hitler marched into Czechoslovakia and Poland, and Japan
invaded China. By the end of 1939 your account would have been up to $7,200. And
because the 1930s were characterized by deflation, or falling prices, the buying
power of that $7,200 would actually be $8,600.
As the 1940s began, the war broadened, and the United States was soon fighting
both Japan and Germany. The market fell and rebounded, and by the end of 1944,
fifteen years and three months after you invested your $10,000, you would have
been ahead -- by $400. Despite the worst-timed investment imaginable, the worst
depression of the century, and the worst war in history, your initial investment would
have grown by four percent.
Over the next sixteen years, through the hot war in Korea and the Cold War
elsewhere, through nuclear threats and labor turmoil, the market continued to rise
powerfully. By the time of John F. Kennedy's election as President, in 1960, your
$10,000 would have become $92,900.
The Vietnam War began and seemed never to end. Protests disrupted U.S.
campuses, and riots burned Detroit, Washington, Los Angeles, and other cities.
Inflation loomed. Then came the Arab oil embargo, wage and price controls, the
closing of the gold window, and the Watergate crisis. The years 1961 to 1975 were
nasty and often depressing, and included the worst two back-to-back years (by far)
for the market since 1930 and 1931; nevertheless, stock values more than doubled,
and by 1975 your $10,000 would have been worth $261,800.
Inflation accelerated to nine percent in 1978 and to 13 percent in 1979. The rate on
long-term Treasury bonds took off as well, breaking 15 percent in 1981. It was hardly
an atmosphere accommodating to stocks. Who would want to own equities when
Treasury bonds were paying significantly more than stocks had returned
historically? Yet the market continued to climb, and by 1985 your $10,000 stake
would have become $999,000.
Over the next thirteen years inflation declined, taxes were cut, the Berlin Wall fell,
and U.S. businesses rejuvenated themselves. The stock market soared, and by the
end of last year your investment would have been worth $8,414,000. It would have
grown by a factor of 840 -- or, after accounting for inflation, by a factor of 90.
The calculations for this little history come from a series developed by Ibbotson
Associates, a Chicago research firm. We tried to pick the worst possible scenario,
and chose dates after the initial one at random, but stock-market returns are so
steady that you can pick any lengthy period you want and the results will be roughly
the same.
The consistency of returns in the stock market over long periods is an important
lesson. In his book Stocks for the Long Run (1998), Jeremy J. Siegel, a professor of
finance at the Wharton School of the University of Pennsylvania, divided U.S. market
history into three periods: 1802-1870, when stocks returned 7.0 percent in real
(inflation-adjusted) terms; 1871-1925, when they returned 6.6 percent; and
1926-1997, when they returned 7.2 percent.
That last figure is especially convenient, because it works well with the "Rule of 72."
Divide the percentage rate of growth into 72 and you find the number of years it
takes an initial investment to double. At 7.2 percent it takes ten years. This means
that if stocks continue to behave as they have over the past seventy years, a woman
twenty-five years old who invests $20,000 now will have $320,000 in today's buying
power when she reaches sixty-five. She could use that money to buy an annuity
that would pay her an income she could live on until she died.
theatlantic.com |
