Skip navigation
MOST POPULAR RELATED TAGS
  • TOPICS
  • SECTORS
  • COMPANIES

Current DateTime: 10:40:05 15 Nov 2009
LinksList Documentid: 23371764

RSS FEED

» Help

Current DateTime: 10:40:05 15 Nov 2009
LinksList Documentid: 30111251
powered by digg
Fast Money DisclaimerFast Money BiosAbout Fast MoneyRapid RecapFast Money Home
Text Size

At yesterday's Power Lunch town hall (links to video highlights are below), there was some good debate on whether buy and hold pays off in the long run.  During one segment, Dennis Kneale went back in time to show that while the market is down in the short term, the S&P 500 Total Return has yielded a compound annual return of over 8% per year since 1988.  Others argued that even with a long term horizon, there are plays you can make to help you outperform, especially in these volatile times.

Here are some of the analyses that fueled the discussion:

1) Short vs. Long Term Trends: Over the past decade we have seen some significant swings in the markets with no more than five years between peaks and troughs but over the long run, the trend has been fairly steady.

First the shorter term results...

  • The S&P 500 Total Return index (accounts for price appreciation and dividends) peaked at 2447.03 on October 9, 2007.  Since then, it is down 45%. 
    • From its peak to its trough of 1206.04 on 11/20/2008, it fell at a Compound Annual Growth Rate (CAGR) of -47.0%.
    • $100 invested on 10/9/07 was worth $49.29 on 11/20/2008
  • Conversely, from its trough of 1108.91 on 10/9/2002 to its peak of 2447.03 on 10/9/2007 the S&P Total Return gained a total of 121%
    • CAGR of +17.2% (CAGR of +1.4% from 2002 trough to 2008 trough)
    • $100 invested on 10/9/02 was worth $220.67 on 10/9/2007
  • From its peak of 2107.28 on 3/24/2000 to its trough of 1108.91 on 10/9/2002 the S&P Total Return lost 47%
    • CAGR of -22.3.0% (CAGR of -6.2% from 2000 peak to 2008 trough)
    • $100 invested on 3/24/00 was worth $52.62 on 10/9/2002

Now look at the long term (see chart below).  Extending the trend line from its divergence point in 1995, you can see that while we have fallen significantly from the highs of late 2007, we are exactly on trend.  Many technicians will tell you that a buying opportunity occurs when a security dips to its trend line and bounces back up.  Unfortunately, that does not mean that a person who is nearing retirement has the luxury of recouping the significant losses he or she may have just experienced, but if you are further away from retirement, it could be the time to start getting your feet wet.  Since 1995, the CAGR for the S&P Total Return Index is over 6%; since 1988, it is over 8%.

Continue to the next page to see what would have happened if you panicked and got out of the market at the bottom, i.e., "sold low."


Tools:
PrintEmailAdd This share icon
Next Post
  • digg share

CNBC HIGHLIGHTS

  • Warren Buffett and Bill Gates spoke to Columbia students, and Buffett made the students a startling offer.
  • Brian L. Roberts
  • For the chief of cable company Comcast, growth has been about making deals – generally very large deals.
  • Some companies may start using insurance to shift carbon risk from their balance sheets to maybe... yours?
  • The president and founder of Genesis Today wants to improve America’s health, and thinks Wal-Mart can help.
  • Switzerland's privacy watchdog is taking legal action to force Google to make changes to its Street View service.
ADD COMMENTS
Remaining characters


Current DateTime: 07:13:39 15 Nov 2009
LinksList Documentid: 29778428

Current DateTime: 07:13:45 15 Nov 2009
LinksList Documentid: 29779196

Current DateTime: 07:13:45 15 Nov 2009
LinksList Documentid: 29779199

Current DateTime: 07:13:46 15 Nov 2009
LinksList Documentid: 29779198
  Data is a real-time snapshot  *Data is delayed at least 15 minutes
Global Business and Financial News, Stock Quotes, and Market Data and Analysis

© 2009 CNBC, Inc.  All Rights Reserved.
A Division of NBC Universal
Thomson ReutersThomson Reuters