The Stock Market Takes Another Dive - Steer Clear ?

MrMalkin

fairleads wrote: »

So would you rather have capital growth or a total return of zero. By the way, total return is tangible. It refers to proceeds from the disposal of an investment expressed as a % of the original investment, not some figure on a piece of paper.

Err, no. As Aegis said the difference between the purchase price and the sale price is the capital growth, not the total return. Total return is the sum of capital growth and income. For example:

0% capital growth + 5% income = 5% total return
5% capital growth + 0% income = 5% total return
2.5% capital growth + 2.5% income = 5% total return

Unless there are taxes to apply or some strange accounting practices or something it's not possible for total return to be less than capital return, it must be at least equal. For example a commodity like gold has no income so its total return is the same as its capital growth. On the other hand a bond held to maturity has no capital growth and all of the return comes from the coupon income.

atush

My own personal opinion is when the market either dipps or dives is the best time to invest. You can pick up quality investments at a cheaper price.

sabretoothtigger

Just dont buy junk hoping it will become less junk.

A lower price on a company gaining market share, etc is worth it even when price gets worse after, so long as the company is improving

GeorgeHowell

MrMalkin wrote: »

You can't be serious. You doubt such data exists?

All you have to do is look at the FTSE 100 Total Return index:
http://www.bloomberg.com/quote/TUKXG:IND

To make it super easy for you, let me spell it out:

FTSE 100 Total Return 30/12/1999: 3,141
FTSE 100 Total Return 12/04/2012: 3,907

So not only did dividends 'substantially offset' the 20% decline of the FTSE, they actually provided a nominal 24.4% increase over that time. You're clearly not in a position to be able to dispense advice on this subject if you can't even get your basic facts straight.

24% over 12 years. Is that necessarily better than selected savings accounts with interest reinvested ?

GeorgeHowell

jimjames wrote: »

What you seem to be confusing is the state of the UK economy with the UK stock market. The two are not directly connected in the way you suggest and nearly 70% of the income for companies listed on the FTSE actually is generated outside the UK.

If you seriously think that no companies are going to do well in the future then stock up on tinned food and weapons as the future would be pretty dire. Personally I'd say that the companies that prosper in future may not be the same ones as are doing well now (for example Google didnt even exist as a listed company in 1999 and companies selling typewriters in 1900s aren't selling the same volume anymore) but companies will continue to generate profits unless we all become a communist state where that is banned.

The UK, European, and world economies are troubled, not particularly stable, and evolving in ways that are neither predictable nor precedented. I don't know whether equities are going to prove to be a better bet than alternatives in the future. But what I do know is that because of the uncertainties people who make a living one way or another from selling equities are being disingenuous in continuing to describe their superior performance as a given.

GeorgeHowell

MrMalkin wrote: »

Well for starters, and as you conveniently ignore yet again, the bare FTSE numbers ignore the dividends earned during that time period so just multiplying it by inflation produces a meaningless number. A more accurate analysis, made using your flawed methodology, shows that the FTSE 100 Total Return starting at 3141 should be worth about 4,200 today to keep up with inflation, when it's actually at 3,900 - therefore not far away, considering we're in the middle of a bear market.

The 1999 peak is just that, the absolute peak. I doubt very many people invested all their holdings at that exact point in time, therefore it's pretty stupid to pin your entire argument on that date. A more sensible investment approach would have involved PCA which would have resulted in higher returns over that time. Whether or not that would be enough to beat inflation depends entirely on the schedule of payments, and how long the person has been investing. Someone who started 5 years before or 5 years after your 1999 date would have seen very different returns.

It doesn't matter whether other periods show a different picture. Nobody knows when is the right time to buy and sell, what to hold and for how long, or how things will shape up. It's all a gamble, that's the point. But it's generally not sold as such, on the contrary people who decline to put the bulk of their eggs in the equities basket are described as "recklessly cautious".

20% decline in capital value over the past 12 years, and according to quoted statistics that I haven't examined, 24% increase over the same period with reinvested dividends. In hindsight it's possible to pick other periods with better trends. But nobody invests with the benefit of hindsight, do they.

Thrugelmir

IronWolf wrote: »

You're assuming that the market price reflects the true value of a company. I think its common consensus now that during the dotcom the markets got wildly over valued.

Agreed. LastMinute.Com was valued at peak at £530 million, yet only had an annual turnover of £3 million and had never made a profit.

The market value was based on expectation rather than current performance.

MrMalkin

GeorgeHowell wrote: »

It doesn't matter whether other periods show a different picture. Nobody knows when is the right time to buy and sell, what to hold and for how long, or how things will shape up. It's all a gamble, that's the point.

All investments are a gamble, including gold and cash in a savings account. Taking too little risk is just as bad for performance as taking too much.

For about the millionth time in this thread, let me repeat: you can diversify away a lot of risk buy exposing yourself to other stock markets and other asset classes (as dunstonh's example 'balanced' portfolio showed). You can take advantage of volatility by using various portfolio techniques such as PCA and rebalancing.

Pointing to a very specific time period which just happens to start at the very peak for a single asset class, whilst ignoring all these other factors, is moronic. Nobody is arguing that people should invest in the FTSE and nothing else.

fairleads

The Stock Market Takes Another Dive - Steer Clear ?

Guys - reinvesting divis in a declining market is essentially increasing ones holdings in the hope that stock prices increase to at least the accumulated value of your investment. Reinvesting divis does not of itself guarentee growth

If the sum total of your divis and the share price today is less than what you paid for the shares, your total return is negative.
If you are retiring today the annuity or drawdown will suffer. That surely, in essence, is what GH is alluding to in the title of his thread.

fairleads

Aegis wrote: »

Surely the disposal figure is just the capital value and doesn't include dividends that were paid out over the holding period. As such, it can't represent total return.

If it was an accumulation unit or a non-income-producing asset, then the two would be the same, but otherwise the disposal value less acquisition cost is the capital gain alone.

Mr Malkin specifically states he is reinvesting the divis.