How long until the ASX 200 recovers?

I was thinking today about how long it is going to take for the ASX 200 to recover back to its previous high of 6,852 in November of last year and what return you would get if you invested your cash into an index fund like STW now that the ASX 200 is around the 3778 mark. So I plugged the figures into excel and got the following results.

Years / annual rate of return
1 - 81.37%
2 - 34.67%
3 - 21.95%
4 - 16.05%
5 - 12.64%
6 - 10.43%
7 - 8.88%
8 - 7.73%
9 - 6.84%
10 - 6.13%

What can you conclude from this, well even if you had a very conservative outlook for a future recovery of 6 – 8 years the average return on your investment is still better than can be achieved via your bank account.

 

Plus dividends each year

 

so for those of us who owned STW at 6800, need to wait 6-8 years to get our money back?

 

By histories standards if it takes more than 3 years to recover to it's high of 6852 it will have been a fairly prolonged recession.

 

I wish that were true...
All Ords
Jan 1970 : 431
Nov 1971 : 282
Jan 1973: 421
Oct 1974: 193

Didn't crack 421 again until Sept 1979!!! thats over 9 years before the 1970 peak was surpased.

 

If you add inflation, opportunity cost and fees (if applicable), you may not get your money back at all.
Some people bought Telstra shares paying $7~$8/per share more than 8 years ago, and they are still waiting to get their money back.

That’s what happens when some people invest without basic strategy in place.

 

young gun how did you get those percentages?
cheers

 

So what is the "basic strategy" I should have had on STW?

 

quite easy, you just use the Goal seek tool in excel to calculate what annual rate or return would it take for a number say 3,800 to reach 6,852 over a certain period.

 

cheers mate

 

One of the most important ‘ingredients’ of any strategy (not only in case of STW) is a stop loss (exit point), which should be defined before you engage the market.
Stop loss will help to prevent your equity from washing away if things go wrong.
Not having a stop loss in place, may give you a tremendous headache one day.

 

1. Think Japan... and a lot of other markets. To get your money back or see an annual return of say 6%, you may have to wait 30-40 years if you enter the market the wrong time.

2.
Question:
For Dow index, you use a buy-and-hold 10-year strategy. Say you buy once into the market every year and then sell what you bought 10 years later. Now for 30 years (30 investments), how many among them would give you a 10% annual return over the 10 years?
Answer: 4 out of 30.

Still thinking about "long term" investment?

Bottom line: If you enter the market the wrong time (doesn't have to be the top), you are very likely to never get your money back or get the so called long term average return of 10% even you are a "long term" investor.

 

I haven't done the analysis, but I would be very surprised if a strategy involving implementing a stop loss would result in a better result than buy and hold in the long term. Just look at what happended in the US last night - the second largest increase in history, just a few days after one of the worst 5 day declines. Aside from fees for moving in and out of the market, the real risk is loss of upside on the bounce back.

Not meaning to be disrespectful Tropo / Sphynx, but if it were that easy for you to beat the index on a consistent basis, you would be one up on the majority of fund managers in the industry! I'm not saying active managers can't beat the index - in fact it stands to reason that about half of them should do so every year. What I am saying is that it is very unlikely to be the same managers beating the index year in year out.

BTW - if you have done some analysis you can share with me on the DOW / AORD or other indexes (not Japan obviously) and can demonstrate a stop loss rule which consistently outperforms the index I would be VERY interested in seeing this - and will publicly apologise/withdraw my comments above

 

BV / Young Gun

there is a simpler and more direct way to calculate the figures provided by Young Gun in the opening of this thread. Simply use the equation:

=(6852/3778)^(1/years)-1

ie to calculate the required return for 5 years use:

=(6852/3778)^(1/5) - 1 = 0.126 (ie 12.6%)

 

'In the long run, we're all dead' - John Maynard Keynes

Do not worry about US market at the moment. What is happening now in US some people call: fireworks crossed with a Muppet Show.
Performance of majority of funds is poor for some reason.
But in comparison private traders/active investors can beat the index almost on the consistent basis. Fact, not all of them can do it.
Stop loss is like insurance. It surprise me that people insure own car, but do not insure own money.
Using Stop Loss Orders to prevent an Investing Disaster

There are a lot of companies which do not exist anymore (Enron, HIH etc....), so people who put money in those companies not having exit strategy in place (stop loss) lost all of it.
Statistically, market is going down 4~6 times faster than up, that is why waiting 7~10 years to get money back (if you lucky) is harsh reality.
If you haven’t done any analysis on this subject, I would suggest that now is a good time to make some extensive reading and educate yourself.

Anyway....If you prefer buy and hold and do nothing – that’s fine.
After all it’s your money on the line...

 

Any backup for this daring assertion? (not anecdotes and hearsays)

Unless you have a very very large capital to allow you do some arbitrage, beating index (after fees) is just a losing gamble.

 

Large capital can help, but this is not necessarily the most important factor.
Having the right system and be persistent is a key.
There are some private traders/investors up there who can do it (I know few of them).
I am not sure why you call it a losing gamble.

 

Tropo - ok so it sounds like you don't have any backup / evidence for your assertion?

Please tell me the name of a manager i can access who can demonstrate consistent long term outperformance of the index. If it is true, I WILL place significant money with him/her. I suspect if this person exists they are managing billions and such a rare beast that I won't be able to afford their fees!!

Oh and by the way - your analogy of stop loss beiong like insurance is flawed. Insurance would be a rolling put option over the full value of the portfolio - ie you retain the access to the upside but pay a (hefty) downside protection premium.

Unless I am misunderstanding what you mean by stop loss - a stop loss is not like insuring your house its more like selling your house - ie when you trigger your stop loss you lose all access to any upside (and lock in your loss!)

I would never adopt a buy and hold on a single share. Companies go out of business all the time. Indexes (and the ETFs which track them like STW) don't.

 

What backup are you talking about?
It seems to me that you do not understand what I am talking about.
I am not talking about managers, BUT private traders/investors.
If I could find a one manager who can consistently outperform the market, I would stop trading myself.
Yes, you misunderstand what stop loss is. You need more reading on this subject. Options is one of the strategy, but because cost is too high, it’s not always the best way to go.
Who said that when you sell you’ll lose all access to any upside ???
If market changes direction you can buy it back – that is what professionals are doing.
Some people are obsessed with catching the upside right at the bottom but they do not care when they are seating on the 40% loss.
As I said, few good books on this subject may help you to understand what stop loss, money management and rest of it is all about.
You can get a headache even holding index if market falls another 15%-20%.

 

okey dokey...

So we're talking about a simple strategy, that I can read about in books, that lets private traders/investors get a better return than any fund manager on 8 or 9 figure salaries?

you bet.