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Mail Bag Time

Its time to dig into my mail bag and see what half baked homilies which pass for series content  I have received this week. This weeks winner comes from an email newsletter I seem to be getting that has the quote…..

“Get out of the casino, own Corporate America and hold it forever! No trading, no nothing. You don’t need to trade; you don’t need to worry about the market. To protect yourself from the bumps the stock market will scare you with – even though it shouldn’t scare you because there have been bumps in the market since the beginning of time – be a very long term investor ”

Jack Bogle: Founder Vanguard Group

Being of an enquiring mind as opposed to a dim wit who takes quotes from others as being gospel I thought I would have a look at what an investment in corporate America would have gotten you.

The chart below is of a single dollar invested in the S&P 500 – as you can see its not that brilliant. In 20 years your $1 would have grown to just under $4, a compound rate of return of about 6.2%. It should be noted that during the same period the average Fed Funds Rate was 3.32%. It is also distressing to note that you would have had zero return for the past 12 years.

Initially this looks not too bad – you have outperformed the cash rate but for the luxury of returning 6.2% you have had to endure losing half your money not once but twice.

Speculation must be worth the effort – for a heart stopping MaxDD of over 50% I would expect  returns of the same order and consistency of an operation such as Renaissance Technology which has posted an annual return of 35% pa net of fees since 1989. A paltry 6.2% simply wouldn’t do.

If I were a buy and hold investor who believed in corporate America in 1990 which is when I ran these figures from then I would have picked from the following stocks.


There are no prizes for spotting the companies that are no longer in the Dow because they went broke.

The numbers are even worse when you look at the local market.

The annualised return on the All Ords since 1990 is 4.5%, during which time the cash rate was an average of 5.6%. Hardly an inspiring vote of confidence in trusting in businesses run by others.

The plantiff cry of buy and hold is simply that – the mournful mewing of those who seem to believe that a stock knows that you own it and that it will do the right thing by you. Investing or trading is not about confidence in the ability of others to perhaps be able to do the right thing by you and your investment but rather confidence in the fact that you will be able to do the right thing.

When you are asked to have faith in a given entity and its management always remember this.  Kodak invented the digital camera and were sent broke by it simply because the idiots running the company could not conceive of the fact that one day someone would put a camera in a phone.

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