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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (513)	7/15/1998 7:40:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

>So much has been written that I may have missed it, but does anyone >know of a 20-year period when dollar-cost-averaging into an >Index-type product would have been beaten by a similar strategy in >another asset class? I don't know of any detailed studies on the subject. My guess is NO or RARELY. But purchases made in the 1927-1929 period were under water or close too it 20 years later. My guess would be that purchases made during the later years of the Japanese boom will be under water for at least a total of 20 years and Japanese bonds have been a spectacular investment since then because because of declining yields and rising bond prices. We are about 8-9 years into it. Purchases made at the 72 peak were under water for a very long time (10 years or so) I also remember seeing a cash vs. stock study one time that showed periods of cash outperformance for a decade or so. My guess is that over a twenty year period the market will offer enough spectacular buying opportunities and the risk premiums offered in general will eventually lead to superior returns over other asset classes. If you are dollar cost averaging you will almost always be making purchases of super bargains at some point in a 20 year period that will lead to a net total of outperformance. Also, the longer the time period the more closely the returns match the growth of the earnings + the dividend and the less significant the valuation entry point becomes. This is a very interesting thing to plug into a spread sheet for educational purposes. If you wait long enough, value means almost nothing. REMEMBER THIS IS MR. VALUE TALKING!!! In 5-10 year periods value is supremely important. It is important to consider that I know of no market anywhere that stayed significantly overvalued or undervalued for more than 10 years. The most spectacular returns are obtained when purchases are limited to markets of reasonable levels or reasonably priced individual assets. (I'm not speaking relative valuation here) This is because there is wide variance in asset class returns over 5-10 year periods. Many entry points prove only marginally profitable or a loser over that time period. Dollar cost averaging will marginally increase your return over stocks in general. On the other hand, many spectacular fortunes were made and some spectacular losses were avoided by not making purchases in those very rare but occasional and obviously overheated markets. It avoids those losing 5-10 year periods on cash put to work at the too high level and enables you to have a larger amount of cash entering at reasonable or bargain levels where the bulk of the net return will come from. There were really only 4 times in modern U.S. history where aggregate market levels were highly suspect. The late 20s, the very late 60s through 72, 87, and the middle 96 through 98. So far it hasn't been more than a few year wait before a bust came or there was a return to reasonable valuation levels (this would entail losses or subpar returns on money put to work at those levels.) In 87 it came the same year. Residential and commercial real estate in the late 80's is another obvious bubble and poor entry point that I am sure that given enough time will outperform many asset classes that it is presently underperforming. But many people that bought in that period are still in the red and missed putting that cash to work in other markets that offered better value. For global investors it would seem that there would always be places that offer terrific values. A competent investor should easily beat any single index by dollar cost averaging into the best value country. In general, I suspect that you should always be adding to your portfolio, because almost all markets offer value somewhere. It is a rare occasion when there is little or no value anywhere and you should hold onto cash. In Buffet's career, which spans 50 years or so, he only sold stocks and raised cash levels "signifcantly" twice. In 1969 and in 1997-1998. Lawrence Tisch made negative market bets only 3 times in his career as far as I know. U.S. in 1987, Japan late 80's, and the U.S. 96-98. Joe Steinberg (who has a record that equals Buffet's) has only cashed in one time. That was last year. Bill Ruane in a very long and successful career has only started cashing in once (this is the rumor) This year! Templeton cashes in more often and moves from country to country based on the values. If I can find the cash study I was talking about, I'll post the facts.