Ask Rande 10,000+

Top 636. Jan 1, 2002 1:11 AM

» Indexer - Re: Re: 3 in a row?

Rande, I would like to add my thanks to you for your help over the last two years. That includes several specific questions I have had about taxes, but more importantly for the level headed advice you have given in general regarding the market. I have been feeling really blue today when I toted up my results for 2001, and your post about how markets have rebounded in the past gives me reason to go on. A happy and prosperous New Year to you and all others on this board.

-- posted by Indexer

Top 637. Jan 1, 2002 1:48 AM

» pjstack - Thanx Rande.

Thanks for the answers you have given over the past year (or so) on tax stuff. I've been happy about it! Happy new year!
pjstack

-- posted by pjstack

Top 638. Jan 1, 2002 5:06 PM

» snaimon - Re: Re: 3 in a row?

In response to message posted by Rande:

Thank you very much. I noticed you posted your reply over on US markets boards.

While it is the standard caution that past performance is neither a guarantee nor indicator of future results, I think we can take some comfort in the past rarity of down years. True, Roger and others posting on the Suite may be correct in predicting a long-term bear market worse than '29.

So, we have about a 2 in 70 chance of a repeat down year in 2002 as I figure it to make it 3 consecutive down years.

Could you either cite a source (www-link) or post the yearly returns since 1929 (or whenever) for the S&P/large caps & small caps & bonds and international markets, if possible?

Thanks again.

Stan

-- posted by snaimon

Top 639. Jan 1, 2002 7:54 PM

» tp101 - Re: Re: 3 in a row?

In response to message posted by Rande:

The rebound looks good but if you had invested in large cap stocks, this means that at the end of 1936 you had 107 for each 100 invested in large cap stocks at the beginning of 1929. 7% total return over 7 years.

100
1929 -8.42% 91.58
1930 -24.90% 68.77658
1931 -43.34% 38.96881023
1932 -8.19% 35.77726467
1933 53.99% 55.09340987
1934 -1.44% 54.30006476
1935 47.67% 80.18490564
1936 33.92% 107.3836256

-- posted by tp101

Top 640. Jan 1, 2002 8:07 PM

» Rande - Re: Re: Re: 3 in a row?

In response to message posted by snaimon:

Stan,

The best source I know of for historical market data is Ibbotson's Associates' "Stocks, Bonds, Bills and Inflation" annual yearbook. Here's a link to their site:

http://www.ibbotson.com/

There have been a total of 22 negative years for large caps since 1926, including the two just past, the years surrounding the Great Depression, WWII, and the 73-74 bear market. Prior to 2000-1 and after 1973-74, there were oly three down years (1977, 1981 and 1990 -- all in single digits). Since 1926 there have only been seven 5-year rolling periods of negative return on an annualized basis, only two 10-year rolling periods of negative return (1929-38 which had an average annual return of -0.89% and 1930-39 which had a return of 0.05%). There has never been a 15-year or a 20-year period since 1926 where stocks have failed to provide a positive return. Even during the so-called secular bear market of 1966 to 1982, large-caps returned 6.8% on an annualized basis and small-caps returned 14.9%. A "Total Market" mix of 75/25 large/small would have returned nearly 9% even during that adverse period.

BTW -- Correction to the "3 in a row" data. Actually, there were three consecutive down years for large caps during WWII:

1939 -5.45%
1940 -15.29%
1941 -17.86%

During that same period, small-caps had positive returns:

1939 +4.69%
1940 +5.36%
1941 +6.71%

For large-caps, those the three down years from 1939-41 were followed by four consecutive up years of 12.43%, 19.45%, 13.80% and 30.72%.

-- posted by Rande

Top 641. Jan 1, 2002 8:16 PM

» Kirk - Small Cap Effect

An interesting discussion if given in Contrarian Investment Strategies : about some misconceptions on real returns available during the great depression. Dreman talks about great stocks with NO VOLUME on some days... Pg 321 says "The median volume was 100 shares at the beginning of 1931. Moreover the market continued to be almost illiquid through the entire 1931 to 1935 period. A startling 58% of these stocks did not trade on any given day."

Dreman goes on about how the spread was as high as 45%... and that a mere $111,422 would buy all small-caps traded on any given average day the volume was so light...

Anyway, the point is small caps gave a HUGE return after their great decline but much of that decline came from low volume ultra lows and any real volume brought the prices up.

I often wonder if the small volumes and small prices we see today in some stocks that are selling below book value are seeing a similar thing and any "real interest" will give quick doubles to some stocks? I've actually bought a few companies trading on micro volumes hoping this is the case. It just blows me away that the spread is so large and how careful you have to be and still the tide can take 50% away from you in short order... and sometimes bring it right back.

[end of comment... not sure I have any point...]

-- posted by Kirk

Top 642. Jan 1, 2002 8:31 PM

» Rande - Re: Small Cap Effect

In response to message posted by Kirk:

Kirk,

Not to mention the fact that post-Depression there were lots of "small caps" that were simply downtrodden former "large caps." Not the typical definition of an up-and-comer. smile All the history is interesting, but the important thing to take away is that equity ownership has been the way to generate wealth over the long term, provided such ownership is appropriate given individual risk tolerance and time horizon within a well-diversified overall portfolio and is, of course, accompanied by lots of patience.

-- posted by Rande

Top 643. Jan 1, 2002 10:08 PM

» bob90245 - More on small cap vs large cap

If I can add my 2 cents to the large cap/small cap story...

I found the research revealed by Jeremy Siegel from his book "Stocks for the Long Run" fascinating. While small caps beat large caps in the period from 1926 through 1997, there were significant periods of hot streaks and cold streaks.

According to Siegel:

"After 1983, small stocks hit a long dry period and underperformed. In fact, if the nine-year period from 1975 through 1983 is eliminated, the total accumulation in small stocks over the entire period from 1926 through 1997 falls nearly one-third below that in large stocks."

I should add to clarify...

During the nine-year period from 1975 through 1983, small stocks averaged a 35.3 percent compound annual return versus the 15.7 percent return on large stocks.

-- posted by bob90245

Top 644. Jan 2, 2002 5:49 AM

» DennisL - Tax Deduction for Gasoline Sales Taxes

Good morning, Rande. Happy New Year to you.

While enjoying some college bowl game action with friends yesterday, one of them mentioned that on her and her husband's tax returns every year, she claims a deduction for the sales taxes that we pay on gasoline. She and her husband are retired and use their cars for personal errands, pleasure, and some volunteer work only.

I told her that this didn't seem correct to me, that one could claim this type of deduction only if the cars are used for business purposes. She said that a CPA prepares their tax returns, so the deduction must be all right.

It still didn't sound right to me, so I told her that I would "Ask Rande" and report your answer back to her.

What do you say?

Thanks, big guy.

-- posted by DennisL