Tags: Sommer | long term | stock | return

NYT's Sommer: Looking at 5 Years of Stock Returns Isn't Long Enough

By    |   Tuesday, 18 February 2014 11:42 AM

When deciding whether to invest in the stock market, you want to look at its long-term performance, but five years, a period often used to measure results, isn't adequate, writes New York Times columnist Jeff Sommer.

Five-year returns looked a lot different at the end of last year than they did at the end of 2012, even though the periods shared four years in common, he notes. The divergence stems from the market's sharp drop in 2008 and torrid rally in 2013.

The 2008 drop, of course, is only part of the period ending in 2012, and the 2013 rally is only part of the period ending in 2013.

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In the five years through 2012, the annualized return of the Standard & Poor’s 500 Index, excluding dividends, totaled negative 0.6 percent. In the five years through 2013, the annualized return, registered a whopping 15.4 percent.

"This is an anomaly in market returns that’s occurred because of the calendar and the extreme moves in the market that have taken place since the financial crisis," David Kelley, chief global strategist at J.P. Morgan Funds, tells Sommer. "It can be very misleading if you don’t look at it carefully."

In 2008, the S&P 500 plunged 38.5 percent, and in 2013 it soared 29.6 percent.

Meanwhile, a chart is circulating that shows the Dow Jones Industrial Average going back to July 2012 closely matches one from 1928-29, signaling a crash may be coming soon.

Mark Hulbert, editor of Hulbert Financial Digest, takes it seriously. "The chart was first publicized in late November of last year, and the correlation since then certainly appears to be just as close as it was before," he writes on MarketWatch.

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When deciding whether to invest in the stock market, you want to look at its long-term performance, but five years, a period often used to measure results, isn't adequate, writes New York Times columnist Jeff Sommer.
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Tuesday, 18 February 2014 11:42 AM
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