Will Santa Claus come to Wall Street?

[Tomconroy]

The final five trading days of the current year and the first two trading days of the new year have traditionally been a good period for Wall Street. Since 1928 the S&P has been positive 79 percent of the time registering about a 1.7 percent gain.
In any event, it's been a damn good year.



https://www.cnbc.com/2021/12/23/santa-claus-may-be-on-his-way-to-stock-investors-in-the-week-ahead.html

[progree]

1. Since you mentioned the S&P 500, I notice it set another new all-time closing high

at 4726, breaking the previous high of 4712 set Dec 10.

But there are those who have been telling us since 2014 that the market is a bubble and a casino where the House has the edge.

Yes, the market will inevitably crash, and maybe soon, like the near 50% crashes of 74-75 and the dot-com one, or 57% housing bubble crash (peak to trough declines of the S&P 500 in all cases), but when the market has 2 or 3 doublings and then gives back one of those doublings, it's still a lot lot better than bonds and cash (money market, CD's...).

The bigger gamble by far is trying to avoid outliving one's savings by settling for a 1%-3% return with a bonds / cash mix. Unless one has a really large nest egg and inflation isn't too bad.

[PoindexterOglethorpe]

2. There is a reason stocks are so high.

It's because many companies are doing better than ever. It's not a Ponzi scheme, even though too many here seem to think that's how it works.

Honestly, all of the recent nonsense about a stock market crash is exactly that: nonsense. Oh, and even if I'm wrong, and the market drops a whole lot, do NOT sell your holdings. You lose the most when you sell at the bottom and buy at the top. The best strategy is to buy and to hold. Whenever I see someone who claims to have lost EVERYTHING in 2008 I know that's someone who was trying to time the market. Which is a very bad idea.

I've been investing since the mid 1970s, and in that time I've consistently made money. Hmmm. How bizarre is that?

[progree]

4. "all of the recent nonsense about a stock market crash is exactly that: nonsense" - why do you say

that? By crash I'm talking about 40%-60% range like the '74-75, the dot-com one and the housing bubble one. Is there some reason one of those is never in our future? What has changed that has eliminated any possibility of that in the future?

The price/earnings ratio is way above any previous time in our history except prior to the dot-com crash. Is there no upper limit that the P/E ratio can reach and maintain now?

What I've been saying is one can be virtually certain there will be one in the future, we just don't know when, it could be a decade or decades in the future and one would miss out on a lot of rise between now and then.

Just like those blaring bubble bubble bubble in 2014 would have missed out.

An investor who had ignored the blaring and put $10,000 into the S&P 500 (via VFINX S&P 500 fund) mid 2014 would have $27,575 now, just 7 1/2 years later.

A 50% crash tomorrow would still leave one with a $13,787 balance, 38% above one's initial investment, and with outsized recovery growth rates going forward almost assured.

If one has 2 or 3 doublings (a doubling is something the stock market as a whole manages to do about once every 7-8 years ON AVERAGE), a 50% crash just gives up one of those doublings, and anyway that's just a temporary give-back.

Heck, if we're just talking about the price, a single doubling followed by a 50% loss brings us back to the same price; in the meantime we've collected the dividends which are quite competitive with bond funds, so one hasn't lost anything.

A point I was trying to make in my Dec 2 post https://www.democraticunderground.com/11213498 -- that someone investing at the very, very worst time -- the very peak of the housing bubble -- would have done quite well between then and now -- over 9%/year annualized.

And that time in the market works out much better for the vast majority of people than trying to time the market.

EDITED TO ADD - back to the Dec 2 post, bucolic_frolic made the very good point that the stock market is undoubtedly being buoyed up by years of $trillions of bond-buying by the Federal Reserve to reduce interest rates. So the 9.88% annualized rate of return between the housing bubble peak and December 1 value is higher than if the Fed wasn't pumping in all that stimulus.

So, I figured what if the market is, say, 50% overvalued? i.e. instead of a "3" value, it should be a "2" value? I figured the rate of return after the market adjusted back to the "2" would be a still very nice 6.84%/year annualized average return. (I used the Vanguard Total U.S. Stock Market Index fund VTSMX rather than the S&P 500 fund for this calculation, but would be very similar for the S&P 500 fund ). And again this is for someone investing at the very very worst time -- the peak before the housing bubble crash.

[PoindexterOglethorpe]

5. Thank you for that post and all the specifics.

Anytime someone claims that they lost everything in the 2008 crash that tells me they probably try to time the market and so wound up buying high and selling low. Staying invested for the long term is always a winning strategy.

[58Sunliner]

3. Just wish I had bought more at the dips!