Let’s just go back to the more recent history.
This period is more meaningful to the living.
Nov. 1982 thru March 2000
No doubt a period when you and most investors were riding high.
$1,000 invested
Including reinvested dividends
Inflation adjusted
Total Gain $10,539
Total investment value $11,539
Ave. Annualized Rate of Return 15.15%
Nov. 1996 thru Nov. 2011
$1,000 invested
Including reinvested dividends
Inflation adjusted
Total Gain $527
Total investment value $1,527
Ave. Annualized ROR 2.87%
March 2000 thru Nov. 2011
$1,000 invested
Including reinvested dividends
Inflation adjusted
Total Gain -$201 (that’s a Minus)
Total investment value $798.16
Ave. Annualized ROR -1.91% (a Minus)
March 2003 (approx. S&P 500 low) thru Nov. 2011
$1,000 invested
Including reinvested dividends
Inflation adjusted
Total Gain $407
Total investment value $1,407
Ave. Annualized ROR 4.02%
Finally 30 years
Nov. 1982 thru Nov. 2011
$1,000 invested
Including reinvested dividends
Inflation adjusted
Total Gain $10,539
Total investment value $11,539
Ave. Annualized ROR 15.15%
So, if we have another 30 years and we see another bubble,
we’ll all be big winners.
But those 10,000 or so Boomers retiring every day will probably not be
thrilled with the “time in the market” stats.
Comments
Thank you for your time and efforts with the numbers. Our house has been in the markets since 1978; have not had to rebuild from any major market drops related to our holdings in those periods; a bit anxious about growth going forward and attempting to preserve the existing capital with continued positive returns.
Regards,
Catch
I think it’s normal to be
“a bit anxious about growth going forward and
attempting to preserve the existing capital with continued positive returns.”
MJG and I go around and around when it comes to market timing.
I believe in it because it has worked for me and several hundred people
that I have instructed over the years.
Timing should be a consideration for investors going forward, since the
past 10-12 years have seen very poor returns using Wall Street’s traditional advice.
But if we’re happy with our returns, they’re what we expected and all that
we want, then we should just stick with the one who brought us here.
Hope you have a profitable 2012.
I fully anticipated a reply from you. You are a persistent defender of market timing. That’s okay by me since you are following your own market Gods or Demons, perspective dependent.
I’m puzzled by why you elected to post in the Fund Discussion segment of the MFO and not in the Off Topic section, which housed my original post. Since you are specifically addressing my submittal, I suppose that polite protocol would require a direct response within the framework of the original thread. This divergence from what should be standard operating procedure (the famed military SOP) is a waste of site space and time.
For those interested in my posting that prompted Flack’s reply please see the following Link:
http://www.mutualfundobserver.com/discussions-3/#/discussion/1868/time-in-the-market-not-market-timing
Flack, I thank you for the effort in assembling the five S&P 500 Index data summaries that you presented. Such research absorbs precious time, and therefore should include a succinctly specified purpose, a solid data set, and a well designed analysis procedure that is inclusive of all data and robust against cherry-picking refutation. Your analyses fails in two of these three study attributes.
I assume you, since you always do, framed your brief study to demonstrate the merits of general market timing, thus challenging my post’s theme that “it is time in market, not market timing” that is the dominant contributor to an investor’s end wealth. I consider it a shortcoming in your post that I must assume your purpose.
Your study actually reinforces the position that I reported. Over the long timeframes, the equity market has historically delivered returns that hover around the 10 % per annum average. Your last 30-year entry shows a 15.15 % annual return which generously exceeds the historical average. Your data demonstrate the dangers of short period equity investing, especially recently.
Since you have carefully selected four other periods to illustrate your position, a skeptical reader might suspect some cherry picking of entry and exit points. One would need to be a very astute market timer or a very prescient investor to have a priori chosen those specific trading dates. Perhaps substantial reasons do exist, but without context and without methodology documentation, these data sub-periods seem arbitrary. If in fact you have a specific posting objective you need to more fully develop the logic of your arguments.
I do recognize that the markets have been maddening over the last decade. But that was the case in earlier decades also. All this supports my observation that patience and persistence must be the guiding watchwords.
I have not verified your data sets. I trust your care and diligence in preparing them.
I do not understand your selection of the five reported data sets. I know they were not random, but were most likely chosen to confirm your position. But you offered no context. Some of the quoted data overlapped and thus disproportionately participated in several averages. That’s equivalent to voting several times in an election. Results will be accordingly distorted.
Why the initial starting date? We experienced plenty of Bull and Bear runs before that date. Why the specific entry and exit dates for your five cases? A cynical person might suspect some data mining here. A more complete discussion is warranted. I’m a good listener; most MFO participants are even better listeners.
I understand your frustrations and disappointments given current economic and market conditions. But our economy and our markets have proven their resiliency time and time again. I’m optimistic that 2012 will be better than 2011 was from many vantage points.
All this uproar further demonstrates the wisdom that “it is time in market, not market timing” that generates long term wealth. Market timing is a factor that is difficult to successfully execute consistently. Even when executed successfully, long term reward potential seems to be very muted. That’s the takeaway lesson from my original submittal.
Best Wishes.
MJG
Very good for those who have taken/been able to take advantage of those longer time-frames in prior decades. However, past performance is no guarantee of future results. Time changes, the market changes, technology changes, the world changes and investing changes. Not always for the better in any of those cases.
What defines short, especially in a society where attention spans and outlook time-frames have come down massively? While I don't like Jim Cramer, it reminds me of the discussion of running his hedge fund, where he gave investors quarterly performance figures. Then they wanted monthly. Then weekly. Then daily.
As for 2000-2011's minus, a minus is a minus. An entire decade where the cost of living in many regards has gone up massively, you have a negative return. One can discuss the reasons at length, but a decade is a significant length of time.
Technology and other factors have rapidly decreased the time-frame of investing for many market participants and - as Max said in another thread and I agree with - whether one likes it or not, there are enough investors large and small with a short time frame that their increasingly shorter attention spans now have begun to dictate the now increasingly volatile market that we have.
You can tell people to hold for 10, 20, 30 years, but that isn't going to be the reality for the majority of average investors, nor do we have any guarantee whatsoever that "holding for the long haul" will be effective in the next 10, 20, 30 years just because it worked well for a particular long period before when investing was - I think - a different animal than it is today. I tend to wonder how many average investors can even visualize a 20-30 year time-frame today; the mentality is just so different.
Being "in the market" (not necessarily holding the same thing, but participating at a consistent level over a long term) has absolutely no guarantee of any sort of success, either, as it depends entirely on the specifics. What worked well for whatever time period you like in the past is no guarantee of future results, however much we would like them to be.
"But our economy and our markets have proven their resiliency time and time again."
I'm not going to go into a defense of market timing (and I don't know how people invest via technicals and charts in this market, either), but I will continue to be deeply irritable regarding hope or optimism as an investment thesis ("The markets will do just dandy." "Why?" "Because! That's why!") or some variation of the phrase, "because x has done _______ in the past..."
It's the "The US is going to come out of this time period just fine because we're the bestest" manner of statement. I will not be surprised when many of these people holler that they "Could never have seen it coming!" when the next crisis appears, due to their choice of ignoring the signs. I would think that 2008 would have resulted in a greater (and needed) level of skepticism appearing, but it doesn't seem to have been the case.
I've grown somewhat more long-term in my view of my investments due to a number of factors. However, investments that I consider long-term holdings I can have a 5 year view on, which I think is a significant amount of time in this day and age. It's not 25 years ago where information didn't flow so freely and people looked up the ticker in the paper every morning - now information flow is vastly faster and people have the ability to buy and sell anywhere on their smart phone. On a larger scale in terms of technology, you have HFT and any number of other things - but what do they all tend to have in common? Faster, faster, faster. Faster information, faster trading, lesser time/attention span. I continue to find amusing the interview with the HFT firm where someone had to do a print out to have an idea of what they currently owned. They didn't know what some of the companies even were.
Whether one likes this or not, there's enough of this mentality that it would appear to have a greater and greater effect on market movements.
Among a number of factors, I do think the *ease* of trading (versus the trade process 20 years ago) and technology of investing versus 20+ years ago has turned investing into something very different than it used to be. Who knows how long that may last.
Should I have also posted this in the other thread? Probably. Maybe this thread can be moved.
Lastly, I'm not defending market timing, but questioning the certainty (at least as presented) of a particular method of investing working because it has previously, while many things have turned investing into a more uncertain science than ever.
PS: " I’m optimistic that 2012 will be better than 2011 was from many vantage points."
Any specific reasons?
Speculating....timing here works, maybe....weigh the probabilities....fundamentals and technicals against historical outcomes.....return on treasuries a high probability, close to actual Investing....while the return of XLF to previous glory is not an investment(speculation) I would like to make, but is an example of market timing...current choice to withhold funds....
Investing.....?....not sure in today's climate what I would classify as an investment.....home ownership...no.....stocks....that's worked out super for the last decade.....treasuries....yeh, right...at 0 percent....how about something that will return capital whole....I keep hoping....
Damn, couldn't resist. Been talking about this for some 20 years.
Scott really targeted some of the drawbacks with the 'buy and die' approach to investing. And mind you, there are simply some drawbacks to what is absolutely correct about investing. Time IN the market is paramount.
Now let's qualify this. The market has returned some 10% over the long run. Ok. Fine. What is the long run? I've seen many stats going back to before the Crash of '29 and I believe them. A couple of issues are how long is the long term for you and I as investors AND does the market diverge from equilibrium and for how long?
How long are we invested for? Geez, for most of us, I'd guess 20 years on average. But use 15 or 30 if you will -- it's still a much shorter period than 75+ years. Your 'long term' investment horizon can also be truncated if you have to make any withdrawals from the investment. This could simply be due to age and personal financial plans. You save and invest and then you retire and start to draw it down. Sorry, but his changes the definition of long term. This happened to wifey with a rollover IRA invested 1/1/2000 at vanguard and very conservatively. SEPP withdrawals per IRS formula early at age 50. dot.com meltdown. Account that was supposed to last throughout retirement will run dry at age 63.5. Long term in the stock market was not sufficiently long term to recover from the market reversal on an account with withdrawals. Parallel acct at price was untouched and not only recovered, but has grown substantially while still invested conservatively.
Does this prove that long term investing - mostly static - is the best way to invest? Sure. For the vast majority of people, it's wisest. Most people don't have the time, expertise, nor savy to actively play the market. Note that I say actively play the market rather than 'time the market'. If you define time the market by anticipating what it is going to do tomorrow . . . you're either crazy, on drugs or one of a very few particularly gifted individuals. This type of market timing is sheer idiocy.
How about actively investing? Alas, most of the B&D crowd look askance at anything more than rebalancing as market timing. That's too bad and so myopic.
And that leads to the second issue and that's short term divergences in the market and its various sectors, segments, and regions from equilibrium. One sector doing great while others are down. Some of these can last for years. Geez, the gold bull market has diverged since 2001. These anomolies can be identified and played by actively investing. I call it momentum investing and don't take it to an extreme. I maintain about 75% of my portfolios invested statically. I don't mess with it and it's fairly conservative for a 63 yo. The other 25% I use to overweight trending sectors. Some are going to say that's market timing. feh. So be it. However, the difference I see is that I do not anticipate what will happen tomorrow unless it's already doing it today. If a sector has been outperforming the overall market for a few months I can slowly scale into my target investment insuring that it continues to outperform. So long as it does, I continue to increase my play. When it stops out performing and begins to retreat to the mean, I scale back out. Sure, you need to watch for changes and, but if you pick some long running trend, you can easily overweight it a bit and juice your returns. And you can do it without riding the train back down the mountain - if you pay attention and heed your stops.
And I'm ok if you want to lable me a market timer.
peace,
rono
You’re “puzzled” as to why I posted a reply to you on the Fund Discussion segment board,
instead of on the Off Topic segment.
It’s simple, I made a mistake.
I do that once in a while thinking that I’ll get some sympathy points from you.
I’m still waiting.
I’ll be happy to explain my post examples (on the Off Topics segment) as soon as I find the time.
Have a nice day.
Unless you have other plans.
Hi Scott,
I am old enough to remember my parents saving paper to later sell, and an unmarried uncle who shared our apartment bringing bags of groceries home as partial payment for work at the Civilian Conservation Corp during the great depression. I remember the lows and highs of World War II, the oil shortage scares, the corruptions within the political, financial, and business communities, and a host of other disruptive events that threatened, in some instances, the mythical American way of life. We survived them all.
Although I do not look at the world through a rose colored prism (I’m an engineer by training and practice and always searched for failure mechanisms and pathways), I am optimistic about our resiliency in responding to complex, unexpected events that potentially could have a major impact on out Nation (like a Black Swan). History has established that our resiliency is a part of our National DNA. History matters.
It is not wise to discard history to project likely responses and baseline outcomes. Chaos Theory demonstrates that scale free events, while not entirely repeatable, do behave in patterns and generate results that are bounded. Chaos is not random. We can use history to identify likely boundaries, although there can never be absolute guarantees.
Based on our history, it is reasonable to postulate a 1 % population growth rate, a 2 % individual productivity gain, a 2 % real GDP growth rate increase, a 3 % inflation rate, and Flack taking some contrary position to challenge my postings. These long established trendlines can serve as a guide when making equity market projections.
As a zero order estimate, it is reasonable to estimate a 10 % equity portfolio annual return knowing absolutely nothing else. A 50/50 equity/bond mix should generate a 7.5 % annual return over the long term. These are ground level estimates for the totally amateur investor.
It is easy to make a first order correction to the zero order estimate by using a simplistic method that John Bogle proposed in his “Common Sense on Mutual Funds” book.
Bogle shows that returns over a timeframe like 10 years can be approximated with a three component model: (1) market dividend yield, (2) projected corporate profit growth rate, and (3) changes to the Price-to-Earnings (P/E) ratio. The first two terms are fundamentally based and rather easy to predict; the third term is speculative in nature and a devil to guesstimate.
Using the Bogle formulation allows an investor to refine his market forecasts based on current economic and market pricing conditions. Considering our current economic doldrums, our muted likely GDP growth rate, our modest P/E ratio, and the fact that we are entering the fourth year of the Presidential election cycle, I anticipate equity returns this year to be slightly below the historical know-nothing average. Note that I am using historical data sets to baseline my estimates and I adjust these to accommodate current condition assessments.
I do not understand why you find this type of forecasting so devoid of merit. Are there more sophisticated methods that might improve the prediction? Sure – all models are only approximations and never perfect. But any use of history helps to construct a baseline that, at the very least, reflects boundaries tied to past performance.
What other data sets are available to drive whatever model an investor favors? It is not reasonable to climb into a commercial jet airliner and expect to travel from New York to Los Angeles in one-half an hour. That might happen in the future, but not tomorrow, not next year, and not in 10 years. Historical data informs a performance expectation standard.
I appreciate your anxiety level and distress given the way our Nation has been gravitating. I too am not comfortable with our trajectory. But we live in a complex, interactive world that has dampening feedback loops and Small World connectivity. The speed of our communication links might actually function to alleviate our current dilemma.
We have been menaced by far greater challenges in the past and have team worked to defeat those challenges. Our DNA has not mutated. Remember what Bernard Baruch said: “There are no Bears living on Park Avenue”. Stay the course.
Best Wishes.
MJG
I suppose, at a younger age, I look around - and while I do not want to make blanket statements about people, but we live in a society where a form of communication that encourages abbreviation and less creativity to fit within its boundaries (Twitter, where posts can only be something like a restrictive 140 characters) is not only encouraged, but is celebrated and has become a larger and larger part of media. How much of this communication is something along the lines of, "I had a pizza just now. lol."? Prior generations - and I'm making a generalization - had a different character within them that I generally don't see with many of today's younger generations.
Prior generations did not have the same access to information that people do today, and while anyone is welcome to disagree, I think that - to some degree - it's taken away a degree of intellectual curiosity for many. If you wanted to learn about anything 20-25+ years ago, it was a process that actually required getting up off your *** and heading to the library or even beyond - which was in its own way very rewarding - and not reaching for your Ipad. Now some people view libraries as almost dated in the "age of the E-book", but what about the joy in browsing the shelves and actually thumbing through a book you hadn't expected? The ease of access has not lead to the same level of thirst for discovery or exploration for many, it seems. It's lead, however, to excellent sales for Angry Birds and many other apps.
You have children who would rather play Farmville than actually try and farm in their backyard.
Now are there many bright, young people who do superbly well and take what technology has to offer and realize that it is a tool and a stepping stone to benefit themselves; it can enhance the experience, it is not a replacement for the experience or learning/discovery. However, I remain concerned about what effect aspects of technology are having on a large portion of current and future generations. We live in a society where a woman walks into a mall fountain because she was so distracted with texting on her phone, then goes into a lawsuit against the mall.
When you go to Home Depot to get plants, you can now scan the tag on most of them to learn more with your phone. There's less and less of discovery for and by one's self. When I was in the single digits, I learned gardening by participating in the family garden, getting my hands dirty and seeing - through trial and error, not by scanning a tag with a phone - what worked and what didn't. It was a valuable experience, and far more rewarding.
True, lasting/rewarding discovery and learning (you know, like what prior generations had to do when they didn't have the internet and smartphones and had to learn via experience and hard work out in the world and be more self-reliant than technology-reliant - plus, apparently everyone had to walk five miles to school, so apparently everyone must have been in better shape) can be accomplished with hands-on experience is, I suppose, what I'm going for, and technology can enhance that experience but is not a replacement for it. Yet, I feel like many people are too reliant on technology to replace more and more real, hands-on learning and discovery and experience because it's easier (not to mention the fact that social media has now made it somehow popular and celebrated to write less and abbreviate more) I fear what may be lasting consequences of that on society.
You talk about long-term market participation, but technology has allowed the average person's more basic greed/fear instincts to be acted out. How easy is it to not stay the course on any investment when all it takes is the touch of a button on your IPad anywhere to stop the uncomfortable nature of an investment that isn't going well, whether it be a specific stock or index fund. Gone are the days of having to get a hold of your broker and going through a large commission, and people wouldn't just have the ability to react and insta-sell or, lemming-like, insta-pile into whatever the flavor of the month that is being hyped by the media (Groupon, which - like many of the other social media stocks, are down significantly from their IPO.)
As for larger market participants, faster information and faster trading is a must to get the edge on competition. I don't think we're going to see eye-to-eye on this, but I continue to believe that the importance of longer-term views and fundamentals have become increasingly less relevant as the focus has shifted by larger investors to increasingly short time-frames. Everyone? No, but enough that those who continue to base their investments on fundamentals and "the long haul" had better have a significant constitution because I continue to believe the faster, faster, faster nature of the many (and this isn't even getting into elements like government interventions and an increasing amount of rumors of such, both here and overseas, but I've gone into that elsewhere) will lead to a smaller and smaller number of people remaining as "buy and holders".
The many will ruin it for the fewer and fewer, whether or not the fewer were right in their methodology and thought process or not. The end result is a market that seems more chaotic and random, with fundamentals becoming less-and-less relevant as people chase the flavor of the moment, come up with faster algos in an attempt to gain that half cent per share advantage over their competition (or process news a minute before someone else's computer) and pile into whatever is believed to benefit from the next intervention by governments around the world.
Will this market environment change? Possibly. When? I don't know, nor do I think anyone does.
" Chaos is not random. "
Well, nor do many often choose to learn from it, because it's uncomfortable and they would rather go back to being optimistic and comfortable than dwell for a moment on a chaotic period. This desire to be comfortable/optimistic rather than dwelling on problematic periods has always been an issue, but there seems to be less and less tolerance for dwelling and learning from negative periods as the years go by.
"History has established that our resiliency is a part of our National DNA. History matters."
Does the history of once great societies deteriorating over time also matter? I believe it's happened on occasion. I'm not saying that's what we're facing necessarily, but I will note that to act as if we are completely immune as a society from deterioration - and possibly significant and lasting deterioration/erosion - due to any number of factors both internal and external is baffling and completely unrealistic.
I really don't agree with any sort of National DNA, especially in association with today's society, which I think is far more focused on looking out for one's self than on the needs of the collective, for any number of reasons, including - with the way things are - necessity.
I don't believe prior history is any sort of guaranteed guide for the future path of a society. Things change, not always for the better (there is plenty of history of that, too.) Resiliency being some sort of expected/continually guaranteed part of a complex society seems both unrealistic and like a recipe for eventual and significant disappointment.
" and Flack taking some contrary position to challenge my postings."
While I won't take a position in that debate and disagree with you at times, I will give you a +1 for the uncharacteristic zinger that leads me to recall some of my own zingers from Fundalarm debates.
"We have been menaced by far greater challenges in the past and have team worked to defeat those challenges."
Different society, stronger/much stronger leadership then (and that's not a comment at either party, but a comment at what politics has turned into in this country in general), any number of things.
Hi Scott,
Thank you so much for your excellent, erudite, and well crafted reply.
I totally enjoyed it.
I agreed with almost all of your assessments. I’m more confident in my own abilities to adapt in this fast paced world; I’m slightly less confident, but still positively so, with respect to the US population as a whole. We have and will survive.
I found your farming story amusing. Anecdotally, my wife and all my children do a little hands-on farming in our backyards. The crops are quite good typically.
A few additional thoughts after a couple of hours “farming” delay. I had a duty to complete. My wife is the farmer; I am the unpaid, but amply rewarded, unskilled laborer. Sorry for the posting time lapse.
I am currently viewing a DVD on Chaos Theory from The Teaching Company. The lecturer is Professor Steven Srogatz from Cornell University. This evolving science addresses nonlinear systems that evolve with time, have numerous bifurcations most likely caused by complex feedback loops that often produce unexpected outcomes.
Does this sound familiar? Chaos is not randomness. It is the boundary layer between order and disorder. As a marine biologist once perceptively informed me “most action occurs within the boundary layer". That is a truism for many sciences, including the rather perplexing social sciences and their evolving and dynamic networks.
Finally, in closing, an honest disclaimer. I do not believe in oneupmanship tactics. That is a loser’s game since it produces no positive rewards for anyone. My comment relative to Flack’s persistent involvement was apparently a failed attempt on my part at humor using a juxiposition scenario. I really understand and respect his market timing policy although I reject it as a primary decision criterion. To each his own.
We share many common beliefs, you, Flack and I.
Stay healthy and prosper.
MJG
In one respect, though, the social evolution that you observe is really a continuation of a process that has been going on since the beginning of time- by that, I mean specifically the ever-accelerating rate of social change. Do a mental graph of that rate: not at all a linear sort of thing- much closer to a graph where the line goes across and up ever-so-slightly for maybe 90% of the time frame, and then starts shooting upward at an accelerating and exponential curve.
Edison and Bell started the whole consumer "electric" concept only a little more than a hundred years ago. Even then, the rate of change for the next 80 or 90 years was pretty much slow but steady. And then came the transistor, the microprocessor and the internet. All hell has broken loose ever since- no prior group of humans has ever been exposed to nor has had to deal with continually explosive changes of the type which have occurred since then.
It seems to me that you are uniquely qualified as both a participant and as an observer. You write well, logically, and clearly... perhaps some day you may find yourself compiling a history of this time frame for the benefit of those who will follow.
Highest Regards-OJ
I think one thing is constant. Change. We are living in a world with ever accelerating change made possible by the use of technology. However, while all things do change, some thing change faster and others only gradually.
I do not view easy access to information as a hindrance for actual experience. In fact, for an interested party, the availability of information and ability to reach out to other individuals seeking same interests have enhanced the individuals willing go extra step. I welcome that. I regard being able to look up instantly information on a plant is improving efficiency to reach our goals. This is nothing got to the with being lazy or not. Hey, if this is what it takes to keep some people from doing something stupid and later being discouraged, let it be. Just look at this forum.
Sure, these technologies also contributed to a lot of junk and non-productive uses as well but potential to do some good has improved. These technologies has enabled the pace of development to increase and thus the obsolescence factor of what we use and what we do (the processes). We also have new problems to deal with now that we did not have to deal with before (such as texting while driving, walking). Well, you cannot win all, you have to adapt. To some observers this might look chaotic. May be so from a distance.
I visited Chipas state of Mexico last Thanksgiving holiday. There are indigenous people, dependents of mayans. They still wear their traditional cloths. But, I have seen many using cell phones, texting as well. Their children are in the cyber-cafe doing homework on the computer sitting next to some tourist who is using Skype to communicate to their loved ones back at home. Technology is changing the whole world and making it possible for some to make a leap. When these tools are given, what used to be backwards societies are not much different than what is our so-called advanced, complex society. Technology has allowed the repressive regimes to topple this past year. Just a decade ago, it was unthinkable for these nations to go through these changes.
Now, the effect of technology on Finance and investing is not negligible. I think the technology allows people to be involved in the process more, have access to more up to date information. Like I said texting has enabled newer modes of communication but created problems, technology created the problem of more frequent trading.
While everyone is willing to declare Buy-and-hold is dead (and they declare this every year yet it goes on), what I actually see that people are doing worse than the funds they own (Dalbar study). There is so much competition in the market place that even with the arming of more up to date (recent) information is not enough, we are not doing any better. They lack the perspective of longer term history. They think these problems are unique but while all the information is available via the same devices, they did not bother to reach out to inform themselves of the history. The technology did not make them any wiser.
Mostly passive investors that carefully decide on their allocation, properly diversified and tuned their portfolio to their risk tolerance and risk exposure needs, occasionally (or systematically) rebalanced that are able to tune out daily noise are actually doing better.
While S&P 500 might not have done great in the last decade a properly diversified portfolio actually did much better. I will link to a PDF from FundAdvice.com which is demonstrating that a 50% equity-50% bond portfolio over 1970-2010 returned 10% annually with much less volatility and drawdown. I am looking forward to update with 2011 included in this table.
http://www.merriman.com/PDFs/FineTuning.pdf.
While a buy and hold portfolio succeeded fairly well, most people that attempted to time in and out of portfolios have actually done worse. Dalbar studies show that. Fund Investor returns show that. We can even see this on the so-called guru reviews published by Hubert Financial Digest and CXO web sites. If they could really do better consistently, perhaps they would not sell their newsletters. It did not take much effort for know nothing passive investors to beat out many of the so-called professionals. For each people successful in market timing (worse market timing on gut feeling instead of steady mechanical systems like Flack uses), there are many failed attempt at great costs. I am sure many people here have one or more experiences in this board with their own failed attempt in market timing that cost them (including me). It is just too hard for many of us to accept that we are average even with additional information we now have access (other people do have access to that). We cannot win on short term trends, trading. We have a life, family, jobs etc. We need to broaden our view to longer term trends and try to get long term returns. Many investors are not even getting the long term averages but they are not benchmarking themselves either so they are just not really enlightened as much as they think they are.
What got people into trouble were their greed and fear. This is nothing new but technology made this greed/fear to inflict damages more often. The winners of the frequent trading game is those at brokerage houses. They have vested interest in trying to discredit long term investing themes.
I even see some changes on your own behavior. You used to trade more often, your investing has gradually evolved towards a longer term view in this past year.
As for rejecting longer term history of the markets, you have a point that current culture of the society has evolved even if our physical DNA is probably has changed very little if any during this time. Yet, after each crash, I read/see similar claims made at that time. The human resiliency has eventually got over. I think it would be a mistake to dismiss the market crashes, recessions, etc. does not provide any valid measure today.
One reason I rarely read your posts is because I find them a huge waste of time, way too long and extremely boring. Then you complain about Flack wasting time.
To sum up your response, you could have said that you don't believe his results and think he is a cherry picking liar. You would have saved a great deal of time and space.