Wednesday, November 19, 2008

S&P 500 Back To February 1997 Levels

U.S. stock markets again fell dramatically today, with the S&P 500 falling 6.1% to 807. To see just how bad that is, we need to go back and see when the S&P 500 first reached/surpassed that level. That indicates just how long time anyone adopting a "buy and hold" strategy would lose

It could be argued that stock holders have received dividends during that time, but since holding stocks incurs the opportunity cost of interest yielding investments and since interest rates at comparable risk levels have almost always been higher, simply looking at price movements will if anything underestimate just how bad things are.

If we now go back we can see that the first time the S&P 500 reached at least 807 was February 14, 1997. Thus, for nearly 12 years, holding stocks would have been a losing strategy. Given that stocks because of their higher risk level should give a much higher return, this gives you a good hint of just how bad things are.


Blogger Hans Bystr√∂m said...

One could also add that the situation is similar in many countries, for instance my native Sweden.
One could also add that if you had followed the widely recommended investment strategy (for retail investors) of buying stocks once a month during this time you would be deeply in the red by now!!

11:54 AM  

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