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Market Lab Report - Human Innovation Always Trumps Fear - 120 Year Chart of the Stock Market

Click twice on the image to view a high-resolution version.

It just goes to show that human intelligence, creativity, and innovation has outdone fear in every case so far. That said, while markets have always recovered, it can take years to breakeven if you bought at a peak. This is yet another reason why buy-and-hold is NOT a safe bet nor is dollar cost averaging especially when it comes to multi-year sideways markets.

That said, only if each year was a day in the above chart which spans 120 years, would it be a relatively safe bet to buy-and-hold, dollar cost average, or buy on the dips. From trough-to-peak, a 697-fold gain or 69,600% gain would have been achieved in just 120 days (instead of 120 years).

This price rise is somewhat similar to bitcoin except the Dow took much longer to achieve this huge return and still does not come close to the price rise in bitcoin since it was created in 2009.

If you bought a dollar worth of bitcoin in 2009 at an average price of 0.001, it would be worth close to $5 million today. If you bought closer to the lows of 2009, or 0.0001, it would be worth more than $10 million today. There is nothing that even comes close to this price rise over that brief span of time.

The power of compounding in stocks, while not close to the rise in price of bitcoin, still can compound at a fast rate. It explains how a select few have taken a small sum, such as $10,000 and run it up into more than a million after taxes over a period of a few years. In working with legendary investor William O'Neil for a number of years, it confirmed that there is always method the madness. One colleague at O'Neil's firm, Dan Morris, retired at age 33 after averaging high double digit percentage gains for nearly a decade. My KPMG audited returns were just the beginning: 

But keep in mind that markets can change in material ways. As one of several significant examples, quantitative easing from 2009 onward rendered obsolete many relied upon indicators.

The key is to remain fluid when it comes to market strategy. So while trading your core strategy or strategies, always be ready to make adjustments if necessary. If I'm making any material adjustment to any of my strategies, I first make sure the adjustment will increase reward while keep risk at similar or lower levels across multiple market cycles. This means your testing period should span many years. 

At Virtue of Selfish Investing, we strive to teach investors how to fish rather than to give them the fish. Our strategies keep in sync with the ever-changing markets. See our archived reports HERE.
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This information is provided by MoKa Investors, LLC DBA Virtue of Selfish Investing (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2018 MoKa Investors, LLC DBA Virtue of Selfish Investing. All rights reserved.
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