32 YEARS TO BREAKEVEN

Interesting long-term inflation adjusted chart of the Dow below. You can clearly see the secular bull and bear markets.

• If you had bought and held at the 1929 high, it would have taken 32 years to breakeven on an inflation adjusted basis.
• If you had bought and held at the 1966 high, it would have taken 32 years to breakeven on an inflation adjusted basis.

The stock market reached a secular high in 2000. Extreme monetary easing by the Fed delayed the secular bear market and the Dow got back to its 2000 high in 2007. After another crash, the Fed has provided unprecedented monetary stimulation and succeeded in pushing the Dow back up to the all-time high. It still took someone who invested in the Dow in 1999, fifteen years to get back to breakeven.

Now the real question. Can you have a secular bull market with valuations at record highs and having never allowed the secular bear market to actually happen? My humble guess is that 32 years from now, the inflation adjusted Dow will be no higher than it is today.

If I’m still alive, I’ll be 84 years old and I’ll tell everyone on TBP – I told you so!!!

Chart of the Day

As the Dow trades approximately 2% below all-time record highs, today’s chart provides some perspective by illustrating the inflation-adjusted Dow since 1900 — there are several points of interest. Take for example an unlucky buy-and-hold investor that invested in the Dow right at the dot-com peak of December 1999. A decade and a half later, the Dow is up a mere 10%. Considering the volatility of that period, it is a return on investment that is definitely not for the faint of heart. On the other hand, take the investor who bought right at the end of the financial crisis. The inflation-adjusted Dow is up a significant 126% from its financial crisis lows — not bad for a little less than six years. In the end, the inflation-adjusted Dow continues to trend higher and is currently 0.3% below its all-time record high.