From: John Conover <john@email.johncon.com>

Subject: Re: Will the stock market go up forever?

Date: 28 Jan 1999 07:08:30 -0000

William F. Hummel writes: > > No market crash has ever lasted 30 years, not even close. The > worst crash was in 1929. If you had bought the market average > just when it peaked in Aug 1929, your inflation-adjusted total > return would have recovered all your losses by Feb 1945. The > second worst crash was in 1973. If you had bought the market > average just when it peaked in Dec 1972, your inflation-adjusted > total return would have recovered all your losses by Dec 1983. > Please note, I specifically refer to total return which cannot be > determined from market price indexes. > The crash of 29 October, 1929, was not that bad, (depending on your point of view, that is.) The US equity markets lost 12% of their value the first day, regained 6% on the second, lost 10% on the third, and then made a recovery for about a calendar quarter-almost regaining their entire losses. (By comparison, the DJIA lost 23% of its value on 19 October, 1987-the worst single day loss in the century's history of the index-at least so far.) However, in mid 1930, the US equity markets started a continuous deterioration, and by mid 1932 they had lost just under 90% of their early October 1929 value. The markets did not regain their early October 1929 value until mid 1954-almost 25 years later, (but this is not adjusted for inflation, as William points out.) Since 2 January, 1900, to date, there have been 53 deteriorating declines of more than 10% in the US equity market indices. Of those 53, 15 were more than 25%. (The lengths of the declines fit, almost perfectly, a 1 / sqrt (t) frequency distribution, and the magnitude of the declines fit, almost perfectly, a sqrt (t) proportionality-which is the argument presented for a random walk fractal interpretation of the markets; those are the theoretical probabilities of the fractal.) 27 years of this century generated 82% of the US equity markets' value. The equity markets value declined in 33 of the century's years. The rest, like 1968 to 1982, were relatively flat, with a dip here and there-like 72-73, (a dollar invested in 1968 would have still been a dollar in 1982, 14 years later, not adjusted for inflation, of which there was an abundance in the early 80's.) (These demographics agree almost perfectly if the fractal is given a 51.5% likelihood of an up movement on any given trading day, or a 48.5% of a down movement-which accounts for the long term gain in value of the markets.) So, "Will the stock market go up forever?" Not likely, based on the historical perspective, (and recent theoretical evidence that equity markets are a fractal mechanism.) John BTW, data at http://www.nyse.com/public/market/2c/2cix.htm, which has the daily closes for the NYSE. -- John Conover, john@email.johncon.com, http://www.johncon.com/

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