This Volatility Is Off the Charts!

Motley Fool guest contributor Brad Hessel manages an investment advising service in North Carolina. He has previously worked in investment banking, and has founded or co-founded a computer game design company, a CASE tool software company, and a knowledge management consulting practice. 

The Motley Fool community is weighted toward investors, as opposed to traders. As such, it has been hard for many of us to stomach the constant drumbeat of the financial media's daily mantra that "buy-and-hold is dead."

Whether they surface on CNBC, investing websites, or blogs, these diatribes generally focus on the trailing 10-year period, an admittedly tough one for stock returns. But they make it sound as if each of the past 10 years, rather than just the last 20 months, has been straight downhill for long-term investors. And they ignore the brutal past six months we long-term investors have endured, which have simultaneously provided more speculative traders with the closest thing to paradise-on-earth they've likely ever seen.

As if we were not in the midst of a stupendous singularity
In fact, our current level of volatility is unprecedented in most of our lifetimes. According to Yahoo! Finance, which lists high-low-close data for the S&P 500 index going back to March 1950, the average daily change in the value of the index over the previous 60 years has been a tad less than 0.6%. In 2006, it was 0.5%. In 2007, it was 0.7%.

In 2008, the average daily change in the value of the S&P index was 1.7%.

This is a huge variation: 300% of normal volatility, on average, day in and day out, for a year! Given the staggering trading volume of highly liquid (and relatively new) exchange-traded funds, this may not come as a surprise. After all, Proshares QQQ Trust (Nasdaq: QQQQ  ) , SPDRs (NYSE: SPY  ) , and the iShares Russell 2000 (NYSE: IWM  ) do more than 70 million shares per day in trading volume.

But wait, there's more. Let's dig into the data:

Single-Day Change

"Normal" (1950-2006 Average)

2007

2008

2009

±0%

54.19%

49.40%

25.30%

16.90%

±1%

37.84%

37.45%

35.97%

29.58%

±2%

6.38%

9.16%

17.39%

23.94%

±3%

1.09%

3.98%

7.11%

14.08%

±4%

0.30%

0.00%

5.93%

7.04%

±5%

0.11%

0.00%

3.16%

5.63%

±6%

0.02%

0.00%

1.98%

1.41%

±7%-to-9%

0.05%

0.00%

2.37%

1.41%

±10%

0.01%

0.00%

0.79%

0.00%

Source: Yahoo! Finance as of April 15, 2009.

That's an admittedly dense table. But look at the second column -- the way things "normally" played out, from 1950 to 2006 -- and you'll notice that 54% of the time, the S&P 500 closed up or down less than half of 1% in a day (rounding to 0%). An additional 38% of the time, the index closed up or down 1%, leaving a small percentage of greater-than-2% movements up or down. 

In this environment, the index cranked out a compounded annual growth rate in the neighborhood of 10%. 

We are far from that happy place now
So, to recap: It's normal for the S&P 500 to essentially close unchanged (less than half a percent up or down) about half the time. The year 2007 was close to normal. 2008, though, was off the charts, with the volatility reaching a fever pitch in a surreal fourth quarter. 

There have been just three days since March 1950 in which the S&P 500 moved up or down 10% or more -- and two of them took place in the fourth quarter of 2008! The only other crazy-volatile day was Black Monday, Oct. 19, 1987. On that fateful day, the market dove 20%, dragging such big names as Boeing (NYSE: BA  ) , 3M (NYSE: MMM  ) , and DuPont (NYSE: DD  ) along for double-digit losses.

In 59 years, there were a total of 14 days in which the index moved up or down 7% to 9%. Six of those days were in 2008 -- five of them in the fourth quarter alone. In a "normal" quarter, the index moved less than half a percent up or down on an average of 32 or 33 trading days. In the fourth quarter of 2008, there were only four such days.

Color to the numbers
We have just experienced titanic levels of volatility that (hopefully) we will be able to tell our grandchildren about -- provided we live so long, and provided there isn't worse still to come. While it was on average more volatile than all of 2008, the recently completed first quarter of '09 was considerably less wild than the last quarter of '08. So far, so good.

But even if we encounter more turbulence before the systemic risk storm abates, this momentous event seems much more unusual and isolated when viewed from the perspective of decades. So whenever you hear one of those nattering nabobs carrying on about the death of buy-and-hold, keep in mind that he or she is drawing conclusions and trends from a singularity. These naysayers essentially argue, "Forget 58 years of experience, and attend only to the last year."

In my opinion, that's a decidedly foolish -- with a small "f" -- thing to do.

Guest contributor Brad Hessel has no position in any S&P index mutual fund or ETF, nor in any of the companies mentioned; however, Brad's clients may have such positions. 3M is an Inside Value recommendation. The Fool's disclosure policy includes certain trading restrictions that apply to Brad. However, his clients are not subject to our disclosure policy, and thus are free to trade any such mutual funds or ETFs.


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  • Report this Comment On April 24, 2009, at 4:38 PM, Varchild2008 wrote:

    Bah! Wait till you see what happens in Q4 2009 !

    *Muahahaha* *evil grin*

  • Report this Comment On April 24, 2009, at 5:10 PM, beatnik11 wrote:

    Great article.

    The people who say that buy and hold are dead are just silly and seem be blind beyond the skewed figure from between now and 10 years ago. Why is it skewed? Well thats pretty easy to figure out, 10 years ago we were in the dot com bubble and they are comparing it to the housing bust we are in now. Under normal conditions (which we are hardly in now) buy and hold is a proven strategy to increse your wealth. Of course it goes without saying that picking smart counpanies to buy and hold on to is a the key.

  • Report this Comment On April 24, 2009, at 5:37 PM, grusilag wrote:

    I'm not sure what is meant by "buy and hold." How long should one hold? Isn't the price of the equity a factor in when one should sell?

    The case usually made for buying and holding is that the stock market has averaged roughly 8-10% annual returns since the Great Depression. But there are at least two things to keep in mind about this fact - first, this is only true for the U.S. stock market for this time period - and for so much of this period we were a manufacturing powerhouse. We created value - today we consume it. Second, and this is the important point - there is NOTHING sustainable about 8-10% compound growth. How do I know? Because the world is finite and not that large. While 8 -10% seems like a flat growth rate - it is anything but. Remember that growth rate is compounded year over year. Compounding growth is the same as exponential growth - the classification of fastest growing functions known to man. And no form of real wealth (not oil, gold, milk, eggs, corn, trees, human population, cars, TVs, cell phones - nothing) grows at an exponential rate for very long.

    In other words do not expect another 60 year period of 8-10% annual returns for this stock market. It can't happen (without inflating the money supply that is - which may be one of the main reasons why it happened for such a long period in the first place). The world is too small for that.

    "Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist" - Kenneth Boulding

  • Report this Comment On April 24, 2009, at 5:48 PM, Ibeatmykids wrote:

    I agree with the article. I will be laughing all the way to the bank when the dow finally rebounds back to levels in 2007. I will be one rich guy. In my experience getting rich quick never works, but this day in age people are not really into being patient. May I remind you all of the story of "The Tortoise and the Hare".

  • Report this Comment On April 24, 2009, at 5:51 PM, Ibeatmykids wrote:

    Gruilag,

    Last time I checked our planet wasn't packed all around with completely develped countries.

  • Report this Comment On April 24, 2009, at 7:08 PM, hhstark wrote:

    grusilag wrote:

    > [T]here is NOTHING sustainable about 8-10%

    > compound growth. How do I know? Because the

    > world is finite and not that large.... Compounding

    > growth is the same as exponential growth.... And no

    > form of real wealth (not oil, gold, milk, eggs, corn,

    > trees, human population, cars, TVs, cell phones -

    > nothing) grows at an exponential rate for very long.

    grusilag,

    I'd have to do more research to be sure of it, but I expect the ROI for a stock market has more to do with the need for risk capital than any commodity or combination thereof.

    Historically, your money is safest - and earns the least - in a bank. Loans to governments are slightly riskier, and more lucrative. Then come secured loans to corporations. Then real estate investments. Then the stock market (most risky and best overall ROI). This relationship has held true for a lot longer than 60 years, although without more research, I couldn't swear to the 8-to-10% top going back further than 1900 or so. But I'd be willing to bet you even money that it does indeed go back a lot farther. And I like those odds going forward, too.

    You seem to be making a Malthusian argument: that the need for risk capital will eventually decline because we will either have run out of resources to make new things or we will have run out of new products or services worth producing or providing... and at that point, it will no longer be possible to get 8-to10%. (Of course if it gets that crowded, one could probably get a 8-to-10% ROI with real estate. LOL)

    I don't see us getting to that point. Civilized human beings are too imaginative and adaptable to either run out of new needs or new ways to fulfill them.

    Besides, I disbelieve that the bank-government loan-corporate loan-real estate-risk capital hierarchy is dependent on population growth...an 8-to-10% cost for risk capital does not imply - and is not dependent on - a population growing at that rate, or at all, necessarily. So a high ROI on risk capital does not mean everything is growing exponentially. All it means is that the market has determined that the variable amount of capital required to fund that class of activities can be had at such-and-such a rate. If there are more entrepreneurs with ideas that need funding that there is money, then the cost of risk capital will rise; if there is more money and fewer risk-takers, the cost will decline.

    The only way you might get to be right, IMO, is if we have a serious downgrade in our level of civilization. Under an Ayn Rand-nightmare collectivist regime, for example, the profit motive would essentially be outlawed. Or if we get a bird flu or catastrophic climate change that wipes out most of humanity. Or the invasion of the body snatchers.

    Any of those things might happen, but I wouldn't bet even money on it. And in the meantime, we are still going to need risk capital, and the providers are still going to demand their 8-to-10%.

  • Report this Comment On April 24, 2009, at 9:47 PM, SiliconBeach wrote:

    Sure, sure, buy and hold, buy and hold. That's what my financial advisor said too. And twice now, I've seen 50% of my liquid assets disappear out of equity funds, where the managers were still making money while I was losing money (and the advisor was getting his retainer fee).

    Enough is enough of this garbage. I've fired them all. And I'm not the only one who feels like this. Here's a good article about the so-called advisors, titled 'Why I Fired My Broker'.

    http://www.theatlantic.com/doc/200905/goldberg-economy

    I've taken over my own stock market investing, or, I should say, trading (but not day trading). Am I smarter than the pros? No, it's not that. It's simply that I can and will protect my money. They absolutely did not do that. They just sat there and watched it go down 50%. That's not going to happen again.

    I note that the author is one of those advisors who needs you to keep your funds with him or he won't get his piece of your money. You can hand over your dollars to him if you want, and let him implement a nice 'buy and hold' strategy that will make him money, regardless of whether or not you make money, but I've decided to pay myself and be my own advisor from now on.

  • Report this Comment On April 25, 2009, at 7:32 AM, jc09058 wrote:

    I often wonder about the people that write "Buy and Hold" is dead. Who are they really and what is the motive behind the article. Are they really that short sighted?

    Or is it a case of helping broker friends improve their personal bottom lines by getting people to churn their accounts?

    Either way, historically speaking, "Buy and Hold" is very much alive and that is what will make some people very rich. My Grandfather did it during the Depression and some of the recessions before he died. My father did during all of the recessions and bubble bursts he lived through. Both retired very comfortable.

    So, I ask myself, I'm doing the same thing and I've seen a 10 times growth in personal wealth even in this current market. So, what will it be like when the market recovers all that it lost? Not sure but suspect that 10 times will be closer to 40 times when that happens because of reinvestment and repositioning.

    Buy and Hold, check

    reinvest, check

    reposition, check

    invest extra income, check

    wait and watch, check

    retire very happy? more than likely, check

  • Report this Comment On April 25, 2009, at 11:07 AM, henryking54 wrote:

    "It’s now well-known that stocks have produced negative returns for just over a decade. Real returns for capitalization-weighted U.S. indexes, like the S&P 500 Index, are now negative over any span starting 1997 or later. People fret about our “lost decade” for stocks, with good reason, but they underestimate the carnage.

    Even this simple real return analysis ignores our opportunity cost. Starting any time we choose from 1979 through 2008, the investor in 20-year Treasuries (consistently rolling to the nearest 20-year bond and reinvesting income) beats the S&P 500 investor. In fact, from the end of February 1969 through February 2009, despite the grim bond collapse of the 1970s, our 20-year bond investors win by a nose. We’re now looking at a lost 40 years!"

    http://www.indexuniverse.com/publications/journalofindexes/a...

  • Report this Comment On April 25, 2009, at 11:34 AM, simonheither wrote:

    Nice post indeed

    How can this be affective in the so call recession?

    How high it should reach on top the chart?

  • Report this Comment On April 25, 2009, at 12:25 PM, mickeyc21 wrote:

    You have absolutely no conscience if you are still promoting buy and hold to your customers. As the poster above noted treasuries have beaten the stock market over an incredibly long time time span.

    As to the question of trying to draw a correlation between volatility and the benefits of buy and hold you are in straight out weirdo territory. I would love to hear why volatility and the negative returns of the stock market over the last decade have any connection. You failed to even suggest one in your advertorial.

    To the well intentioned people mentioning the stock markets "average return of 10%" it would pay to do some research. This number is made up. There is not one piece of academic literature I have ever seen that gives the market returns like this. Even the ever delusional Jeremy Siegel doesn't claim the markets have a 10% return. This is an old wives tale promoted by investment "advisers".

  • Report this Comment On April 25, 2009, at 4:51 PM, bhessel wrote:

    Silicon,

    Not saying that "buy-and-hold" is optimal, just that it is not "dead" -- that is, I believe, properly implemented with index funds, it will still deliver market-matching returns, and those returns will be in the neighborhood of a compounded annual growth rate of 8-to-10% over several decades.

    FWIW, for the portion of their savings our clients allocate to equities, we recommend a macro strategy using ETFs; this has the double benefit of being a winning strategy (macro hedge funds have outperformed average hedge funds, which have in turn outperformed the market, for decades), and providing the incentive to understand what is happening on a macro level that is likely to affect not only one's investments but the rest of one's life.

    Our model portfolio was up 37% in 2007, down 23% in 2008, and is up 7% so far this year. Not everyone follows it, but no one was down 50% last year. Of course, past performance is no guarantee of future returns. :-)

    I'd be perfectly happy if everyone, like you, took personal responsibility for their own savings; I think as a society, we'd all be better off in that event. But the reality is that there are some folks who won't or can't. Financial advisors do their best to ensure some of these folks, at least, get decent guidance, so they don't end up not being able to afford to retire, send their kids to school, or whatever. Financial advisors' compensation is directly tied to the size of their clients' portfolios, so an advisor has a strong incentive to avoid 50% meltdowns (aside from the danger of losing unhappy clients). Also, many financial advisors are providing more than just market investment guidance; they help with tax, insurance, education, retirement, and estate planning, too.

    My clients are typically not active TMF users, although we do try to point them in this direction. If we could get one to fire us and graduate to TMF/managing their own savings, it would be good for everyone! (Sad to say -- though fortunate for us -- there'd be no lack of qualified prospects to replace that client.)

    So congratulations on your decision to take control of, and responsibility for, your own savings! If I may be so presumptuous as to offer you unsolicited advice, please consider investing the time and effort to pass along your insights and wisdom to your kids, too; they are not likely to get this sort of education in school.

    Brad Hessel

  • Report this Comment On April 25, 2009, at 5:23 PM, bhessel wrote:

    mickeyc21,

    First of all, I am not "promoting" buy-and-hold; I am saying that to conclude it is dead from the last 21 months of aberrant market behavior is foolish.

    As for research, as I stated in the article, I analyzed the S&P 500 index performance from 1 Mar 50 on, which you can download yourself from Yahoo!:

    http://finance.yahoo.com/q/hp?s=%5EGSPC

    You can easily calculate the compounded annual growth rate for each decade:

    1950-to-1960 = 12.89%

    1960-to-1970 = 4,82%

    1970-to-1980 = 2.29%

    1980-to-1990 = 11.46%

    1990-to-2000 = 15.28%

    For this entire 50 years, the CAGR was 9.23%. We entered the volatility singularity in 3Q08; the CAGR of the S&P 500 from 1 Mar 1950 to 29 Jun 2008 was 8.17%…admittedly at the low end, but still in the range.

    Clearly the last 21 months have been a bad time to be holding, and a good time to be trading. Equally clearly, a lot of things that work under normal circumstances have not functioned well in this extraordinary environment.

    In short, we have 58 years of data supporting the contention that buy-and-hold lives stacked against the last 21 months and 24 days. If in your considered judgment I am being irresponsible in giving more weight to the 58 years, I guess I will just have to live with that. :-)

    Brad Hessel

  • Report this Comment On April 25, 2009, at 5:34 PM, AirForceFool wrote:

    Volatility can of course be your friend. I've gotten way more conservative on selling options after getting the snot kicked out of me last year, but the simple act of selling calls against shares owned at a price that you can live with is one way to juice your returns... I've got some shares of AXP, and with the nice leap yesterday, sold some calls for July that will net me a between 4 and 5% per month... in this day and age, I can live with that... while I see more upside for AXP, I'm willing to take the risk for guaranteed results now... while the buy and hold may work for some folks, I 've learned to try to value a company and let the shares go once they've gotten close to that price... only problem now is that everything is under priced... sigh... to many stocks... not enough cash...

    Chris

  • Report this Comment On April 25, 2009, at 5:45 PM, bhessel wrote:

    oops my post above should have read:

    We entered the volatility singularity in 3Q07 [not 3Q08]; the CAGR of the S&P 500 from 1 Mar 1950 to 29 Jun 2007 [not 2008] was 8.17%…admittedly at the low end, but still in the range (8%-to-10% ROI).

  • Report this Comment On April 25, 2009, at 7:15 PM, mickeyc21 wrote:

    What method of annual return are you using?

    The data set I checked was Jan. 1 1970 to Jan. 1 1980. They had closes of 93 and 107.94 respectively.

    This gives an annualized return of 1.5% - not the 2.29% you came up with. A 2.29% annualized return over this period would have put the S&P at 116.63 at the end of the period.

    Also the BLS says that $107.94 in 1980 dollars was $50.83 in 1970 dollars so any talk of the return in nominal terms is meaningless without accounting for the value of the monetary unit.

  • Report this Comment On April 25, 2009, at 11:31 PM, shenoy2206 wrote:

    Mickey,

    Stock investing is basically buying great business that generates good returns over a period of time. So if you are buying great companies I see no reason why you would not hold that company stock over a long period of time.

    Just imagine if you were doing a great business yourself would you stop/sell that business due to downturn. You would try your best to continue doing that business even in a downturn . Maybe if you have cash you may think of even purchasing your competitor's business.

    Ultimately stock investing involves taking risk which is the same as taking risk when you do your own business.

    So if the market has brought the stock price low & you believe in that business, purchase more shares. If you do not believe in that stock then sell it.

    I dont think anyone tells you to buy & hold bad company stock.

  • Report this Comment On April 26, 2009, at 11:13 AM, bhessel wrote:

    mickeyc21,

    The Yahoo! data start 1 Mar 1950, so I just kept going 1 Mar-to-1 Mar. Thus, for example, my 70s decade ran 1 Mar 70 (89.71) to 1 Mar 80 (112.50), for an ROI of 25.40% and a CAGR of 2.29%.

    If you're interested, I'd be happy to share my spreadsheet with you (or anyone); drop me a line at info@intelledgement.biz.

    Brad Hessel

  • Report this Comment On April 26, 2009, at 3:37 PM, camistocks wrote:

    Just bring back the uptick rule which was abolished in July 2007. It was introduced in 1938 and was designed to reduce market volatility. Since then we never had a longer period of extreme volatility. Until now, and we even had one of the worst years in the stock market ever... Coincidence...?

  • Report this Comment On April 26, 2009, at 7:55 PM, mickeyc21 wrote:

    Hi Shenoy,

    You have just described exactly what I did do in late 2007 and early 2008!

    I sold my business of ten years (it was a two part sale hence the different dates). So no: I would not try to hold a company - even a great one I was heavily attached to - during a severe downturn.

    I then went short with a portion of the proceeds and kept a significant portion in cash. The return was 22.26% for 2008 for the entire amount - this includes the cash which was invested at zero percent.

    If I had followed your well intentioned advise I would be bankrupt or close to it now. My industry has been devastated.

    The flaw in your tale is that if you are invested at the start of a bad period where exactly does the extra cash come from to buy more stock! You simply don't have the money except for marginal amounts from whatever income source you happen to have.

    I do have the cash however. I can buy another business at a hugely discounted price and keep the balance.

    Everyone on this site loves Buffett so actually think about what he says - buy when the markets on sale. You can't do that if it is your own stock that has been discounted. You need CASH.

  • Report this Comment On April 27, 2009, at 10:38 AM, SkepticalOx wrote:

    SiliconBeach:

    The problem is not with the "buy-and-hold" strategy, it is with your financial advisors. The fact that you hired them in the first place could've been a mistake.

    Buy and hold means buy when they are cheap according to your valuation, hold until its at fair-value or overvalued, and then sell it. The "hold" part is pretty much don't sell if your thesis is still good and the market is acting all whacky. But surely sell it if its overvalued.

    Even Buffett, the man who saids the whole "favorite holding period is forever" doesn't apply to most investors. He buys businesses whole-hog and his company has different tax structure than us individuals, and he's sold many stocks in short amount of years after they became overvalued (PTR, for example).

    Anyways, there are many investing/trading strategies that work, it comes down to how its being executed and luck.

  • Report this Comment On April 27, 2009, at 10:40 AM, SkepticalOx wrote:

    On the whole variety of strategies, I think there was a fool article awhile back that addressed this topic. Value investing, technical analysis, quantitative trading, etc. etc.. Many people have gotten rich off of different strategies, and many of them have done so over a long period of time.

    So whether its skill or luck is for you to decide.

  • Report this Comment On April 27, 2009, at 1:03 PM, Deepfryer wrote:

    If you just invest in the S&P, you're not going to make the 8-10% that you could have expected in the 20th century. The US is a developed market now.. going forward I would expect more like a 5% growth rate for the US, compared to maybe 10-15% for emerging markets. You can still get good returns, but you need to be smart about it and understand that times have changed.

    bhessel: It's more than just 21 months of poor returns. Have you looked at the compounded growth rate for the span from 2000-2009?

  • Report this Comment On April 27, 2009, at 2:52 PM, mpendragon wrote:

    I think there are 2 main reasons for this. First, there are more triggers for volatility. Second, trading on volatility has an effect similar to the randomized reward system that, like gambling, has a moderately addictive quality.

    Trading on business news at a time when it takes a trivial amount of effort to read up on the major events for every company you own shares tends to lead to increased volatility as this leads to more significant triggers for trading.

    As for the gambling thing, trading stocks is now easier, safer, more tax friendly, more legal, and usually cheaper than actual gambling. Fees can be steep but one position can provide a small amount of interest for weeks for a speculator and since the market tends to trend upward your odds are probably better than Vegas.

  • Report this Comment On April 27, 2009, at 7:25 PM, bhessel wrote:

    Deepfryer,

    First of all, I am all for global investing; Intelledgement's model portfolio has been long China and India since inception, and we have never been long the S&P 500. Having said that, the companies in the S&P 500 may be US-based, but for the most part, they are participating in non-US business, too. Economies are more interrelated now than ever before; an S&P 500 index fund may not be the optimal way to participate in global growth (or decline, for that matter), but over time, it will get you a reasonable piece of the pie, imo.

    Secondly, while it is true that the CAGR for 1 Mar 2000-to-30 Jun 2007 is below par (+1%), please note that (as detailed earlier in this thread) we had a 2% CAGR in the 80s and a 5% CAGR in the 70s but we still produced a 8.2% overall CAGR from 1950-to-2007.

    So, while you may be right that the mechanism for risk capital exchange is irretrievably broken forever (though I strongly doubt it), one sub-par decade—or even two consecutive—is not persuasive evidence.

    Having said that, while I don't agree that "buy-and-hold" is dead, I most definitely concur that this time of extraordinary volatility is a dangerous time to be complacent. The specter of systemic risk calls all assumptions into question, and pulls extreme outcomes into play as more-than-remote possibilities.

    Look at it another way: if you are a buy-and-hold investor, your normal time horizon is 5+ years. Well, you had seven trading days in 4Q08 alone where the market moved as much or more than it normally does in a year. And another five days when it moved 6%, and another five days when it moved 5%, and another nine days when it moved 4%…if you have not telescoped your time horizon to account for the fact you are getting the equivalent of years of price movements in a few days—because systemic risk and the responses to it have rendered valuations extremely fluid—then you are not behaving as a responsible buy-and-hold investor.

    Brad Hessel

  • Report this Comment On April 29, 2009, at 10:38 PM, henryking54 wrote:

    "Conventional wisdom views stocks as less volatile over long horizons than over short horizons due to mean reversion induced by return predictability. In contrast, we find stocks are substantially more volatile over long horizons from an investor's perspective."

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1136847

    "Uncertainty about the trend itself becomes more important the further into the future you project investment outcomes. So our paper basically makes the point that to an investor with a long horizon, stocks actually are riskier per period.That is, the rate at which risk grows over the horizon such that it makes the investment riskier over the long run."

    "even with 200 years of data -- you can't really be that certain of the long-term trend. In my first chapter in Stocks for the Long Run ... I say that we could be seeing that the last 200 years are the golden age of capitalism.When we look through the centuries, there have been an awful lot of huge changes. That golden age may be over.So, even 200 years doesn't give you confidence. We have empires that have ruled 1,000 years and more and then they fail.That sort of big picture uncertainty really could be a dominant feature looking far into the future."

    http://knowledge.wharton.upenn.edu/article.cfm?articleid=222...

  • Report this Comment On May 01, 2009, at 10:40 AM, fatebender wrote:

    "Buy and Hold" is not dead, and neither is punk. What's dead is "Buy and Ignore." Many people put their money into someone else's hands (in the form of IRA's, or whatever, you know) and then sat around thinking how rich they are while they lost 60% of their value. Those days are now over for most investors. It's nice to have someone else managing our money, they get their one percent, but realize that they are not legally, or morally, accountable for the money. If you lose, it's *your* fault. Think of it as independence, and it won't be a burden. Personally, I think it's kind of fun.

  • Report this Comment On May 01, 2009, at 11:16 AM, stevee9998 wrote:

    Buy and hold still makes sense, given all the long term statistics. However, new tools available to individual investors, program trades, and 24/7 news feeds, coupled with "normal" human emotional response, could mean that relative volitility will persist. Buy and hold does not mean buy and snooze.

  • Report this Comment On May 01, 2009, at 7:09 PM, rse0506 wrote:

    > Compounding growth is the same as exponential growth - the classification of fastest growing functions known to man.

    But not to mathematicians! n^n and n! (factorial) are both superexponential (grow faster than exponential), and for a really honkin' fast-grower, check out the Ackermann function:

    http://kosara.net/thoughts/ackermann.html

    "It gets interesting with A(4, 2) = A(3, A(4, 1)) = A(3, 65533) = 5+8*(2^65533-1). The result is a number with 19729 digits! We can go one line further, to A(5, 0) = A(4, 1) = 65533, but A(5, 2) = A(4, A(5, 1)) = A(4, 65533) which is far beyond our reach, we can't even calculate A(4, 3) = A(3, A(4, 2))!

    This is also true for A(6, 0) = A(5, 1) - which means, that we can't calculate a single value from the seventh line, or those beyond! So this is the final table (A(4, 2) links to the actual number):

    n

    m 0 1 2 3 4 5 6 7 8 9

    0 1 2 3 4 5 6 7 8 9 10

    1 2 3 4 5 6 7 8 9 10 11

    2 3 5 7 9 11 13 15 17 19 21

    3 5 13 29 61 125 253 509 1021 2045 4093

    4 13 65533 A(4, 2)

    5 65533"

    For this silly digression I sincerely apologize. 'Cept that now some clever dude will probably start a "superexpontntial" growth fund (Ackermann(4,2) by 2013 !).

    Scott

  • Report this Comment On July 05, 2009, at 1:23 PM, bhessel wrote:

    Here is an update on market volatility incorporating 2Q09 data:

    http://intelledgement.wordpress.com/2009/07/03/still-not-you...

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