Ben Carlson, Tom Laura Chela, Laura Chela discussed on Business Beware


To two thousand and nine. Tom, laura. Chella Dom, Laura Chela. My beeps. He wrote in two thousand nine by most measures stocks no longer, look cheap. May eleven two thousand nine. So when you hear some bozo come out of the woodwork like me or someone else saying, well, the stock market looks grossly overvalued just remember nutty, highly regarded, Tom Laura Chela. In may of two thousand and nine said that stocks didn't look Jeep in the market's gone up eighteen point eight percent a year since then. Or close to it. Well, let's start with this one hundred and eighty years of stock market drawdowns, Ben Carlson wrote about a fellow by the name of Robert fry who actually had a video on this particular presentation online. But here's what then add to say. There has been one constant going all the way back to the eighteen hundreds risk. So true. More specifically, drawdowns or losses. That's what we're most obsessed with. Especially when you see fourteen hundred point drops in a couple of days. This fellow fray presented a couple of different charts. On the market to make his point. And charts can be very very instructive. But also very very deceiving. If you look at the long term growth chart of the market. With the drawdowns shaded in red chart doesn't look so bad. I mean, you see the nineteen twenty nine to two thousand ten but but the rest of them don't look all that daunting. But if you look at it on a log scale chart. You see red everywhere. It's far more prevalent. And what's this evening is even though the market over that long time horizon had gone up? You're sitting in the negative a good percentage of the time. And this is why we must work on the brain. If we're going to be successful investors. Here's what Carlson wrote stocks don't make new highs every single day. So most of the time you're going to be under water from your portfolio's high watermark. See most of us look at the high watermark. And we use that as sort of the litmus test as to how well we're doing. But most of the time based on tests were not doing all that hot. He goes on. This makes sense when you consider that stocks are positive just a little over half the time one looking at returns on a daily basis. And he looked at drawdowns going all the way back to nineteen twenty seven. He used monthly returns on stocks. And found that an investor would have been down from a prior peak over seventy percent of the time. In other words, you'd be depressed about how well you're doing. Or your money manager is doing seventy percent of the time. Which causes people? To make some erratic moves with their portfolio sell out fire your money manager change from growth to value or value to growth, go international load up on tech stocks. What ever? The further breakdown by size of the losses. Instructive? You're in a draw down position. A five to ten percent. In other words, you lost five to ten percent. From your personal best. If you will. Twelve point eight percent of the time. Ten to twenty percent. Thirteen point one percent of the time. And twenty percent or worse. Twenty three point one percent of the time on a monthly basis. That's hard to take folks. Twenty five percent of the time. Basically, you're underwater twenty percent from your high and he's going back here to like nineteen twenty six. So these numbers are statistically significant. He goes on over the last ninety years or so. The market event in a bear market. Almost one quarter of the time half the time you're down five percent or worse. It's difficult to appreciate this fact when looking at a long-term, log scale stock chart that seems to only go up and to the right you've seen those mountain type charts and log scale charts. Were they do show, you know, a little bit of an EKG. But the chart is moving higher and to the right. And this folks is why stocks constantly play mind games with us. And I swear if I ever do go back into the money management business or the financial planning business where I recruit and train advisers. The first person I'm going to hire is a psychologist or a drink or someone that can work with the advisors and their clients. So that they don't let these mind games alter a very sound and solid strategy. No one can predict what the future returns, we'll be in the market. So Ben Carlson says no one knows what the future holds for economic growth. The Trump administration. Feels really good. About economic growth going forward. And maybe the Trump administration has a strategy going forward on these tariffs and so forth. And I don't know if you can talk to fed down from interest rate hikes or not doesn't appear. But not even the president of the United States has control over the stock market. Good and bad. And we certainly can't predict how investors are going to decide how they would price corporate cash flows valuations et cetera. At any given point in time in the future. It's just impossible. But predicting future risk piece of cake. Markets will continue to fluctuate and experience losses on a regular basis. As an investor in stocks, you'll need to spend a lot of time second guessing yourself because your portfolio has fallen in value from a previously seen higher.

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