I don’t want to develop a reputation here for repeating the current administration’s talking points, but this struck a nerve: In March, Larry Summers pointed out that the Dow Jones Industrial Average, adjusted for inflation, was recently at the same level it was in 1966.
At the risk of giving away my age, I’ll tell you that that suggests buying stocks right now could be the deal of my lifetime.
There’s at least a theoretical mathematical argument that the best way to get into the market—assuming you have a lump of cash sitting in a money market, bank account, or CD—is to go “all in” without waiting.
This is due to several factors. One is the “time value” of money. Another is the fact that the direction of the markets is impossible to predict—but on average, historically, stocks have gone up twice as much as they’ve gone down. Based on that alone, the argument goes, it might mathematically seem better to invest everything at once than to apportion your investment over time. And with interest rates so low, there’s a real cost to having cash sit idle for long periods of time as you invest it bit by bit. There’s also the camp that says, “If investing really is a ‘random walk down Wall Street,’ what difference does it make if you invest all at once or gradually over time?”
At long last, someone called Jim Cramer out. It wasn’t the mainstream press. In fact, it was one of the leading faces of the “fake” press, Jon Stewart.
In a widely publicized feud and subsequent joint television appearance, Mr. Stewart took Mr. Cramer to task for being (in Mr. Stewart’s view) a cheerleader for those who watch his Mad Money television show. While this encounter may have been as much about entertainment as about substance, I still give Mr. Stewart credit for raising the issue at all.
I’ve been thinking about predictions the past few days since an old pal, Jim, called—his voice brimming with cheer. It was after another of those depressing down days in the stock market that we’ve seen all too often lately. Jim, a longtime options trader, is still involved in investments. I wondered why he was so chipper.
“I just realized,” he chirped, “that the market’s almost back down to where it was in 1995, when you were saying you thought it was getting overvalued.”
Mark Hulbert (with some help from Jeremy Siegel) does a nice job correcting the record about how long it took for stock market investors to “recover” from the Great Depression.
While some are quick to point out that it wasn’t until 1954 that the Dow closed above its 1929 high, Hulbert argues that, in fact, adjusted for inflation and dividends, the Dow got back to its ‘29 level after 8 years—which is still a long time, but not forever.
