stocks more turbulent now than in the past?

artha

I've seen a number of posts on various threads that suggest we should be guided by the "fact" that we have a downturn every 5-7 years. I'm not so sure this is true if I use the FTSE history as a measure.

From 1985 to 2000 (i.e 15 years) the FTSE made steady if erratic gains until declining into a low in 2003 recovering for a few years before starting the current sharp decline in 2007/2008.

In other words I can't see similar events as 2003 and 2008 in the 15 years prior to 2000.

Am I being misled by FTSE stats or have we entered a new phase of more frequent major downturns?

turbobob

If any of us knew what would happen in the future we could be very rich. Over the last decade we've had a clear "double top" on the FTSE and I expect some people read a lot into this, and use it to predict where we go next.

What it highlights to me, is that I think we need some strategy to try and lock in your gains. If you bought a UK index tracker in 2000, if you still held it you would not be much further on than if you'd put it in the bank (you might actually have lost money, no time to check at the moment..). Buying and holding and hoping for the best is not a good strategy IMO.

I found this comparison of bear markets quite interesting - it shows just how steep the current one has been http://www.nytimes.com/interactive/2008/10/11/business/20081011_BEAR_MARKETS.html

The Japanese Nikkei index shows it doesn't always return to where it was soon after - its not returned to previous heights in 20 years there, since it crashed at the end of the 80's.

artha

turbobob wrote: »

If any of us knew what would happen in the future we could be very rich. Over the last decade we've had a clear "double top" on the FTSE and I expect some people read a lot into this, and use it to predict where we go next.

What it highlights to me, is that I think we need some strategy to try and lock in your gains. If you bought a UK index tracker in 2000, if you still held it you would not be much further on than if you'd put it in the bank (you might actually have lost money, no time to check at the moment..). Buying and holding and hoping for the best is not a good strategy IMO.

I found this comparison of bear markets quite interesting - it shows just how steep the current one has been http://www.nytimes.com/interactive/2008/10/11/business/20081011_BEAR_MARKETS.html

The Japanese Nikkei index shows it doesn't always return to where it was soon after - its not returned to previous heights in 20 years there, since it crashed at the end of the 80's.

Thanks, you make some interesting points which I think partly support my original intent in posting i.e looking at the past is no real guide to the future and simply assuming that every 5-7 years there will be a downturn is not even supported by previous evidence. Can somebody who has posted this advice tell me where in the 15 years prior to 2000 there was a significant downturn in stock values (UK)equivalent to 2003 0r 2008?

dunstonh

09-01-03 - 12-03-03 -15.6%
09-05-02 - 30-09-02 -27.48%
06-11-00 - 27-09-01 -24.13%
01-05-98 - 12-10-98 -15.19%
11-01-94 - 03-06-94 -10.8%
29-05-92 - 09-09-92 -12.74%
26-07-90 - 16-10-90 -10.08%
09-10-87 - 10-12-87 -31.13%

Thats the drops greater than 10% since 86. I think I have caught all of them but there were also quite a lot of 8-9% ones as well.

The figures suggest a worsening but its not as simple as that as the growth before each one was greater. A bigger bubble creating a bigger burst? The gap between the last one and this one was also longer than most of the others.

As for financial crisis, you have the american accounting scandals of the early 2000s (linked in with Sept 11 and dot.com bubble burst), the Asian financial crisis of 97, ERM in the mid 90s with the housing crash and recession before that.

There is no mathamatical way of predicting or drawing conclusion from any of the past figures. The point is that these events happen and you should expect them to happen.

purch

Buying and holding and hoping for the best is not a good strategy IMO

I agree with that, and one of the main reasons is that

have we entered a new phase of more frequent major downturns

The markets are continually evolving, and the way trading has evolved, the instruments utilised and the access available nowadays all will, IMO increase volatility and the likelihood of major reverses of trends.