06/2021
26 May 2021 marked the 125th Anniversary of the Dow Jones Industrial Average, DJIA. The index has returned 5.5% annually over this period, excluding dividends. Can the smart investor achieve a 5.5% annual return over a 125-year period? Just what are some of the lessons that the Dow has for the smart investor?
Lesson 1 - Nothing stays forever and the forever can be transient
The DJIA started in 1896 with 12 original members in the index. They are –
1. American Cotton Oil
2. American Sugar
3. American Tobacco
4. Chicago Gas
5. Distilling and Cattle Feeding
6. General Electric
7. Laclede Gas
8. National Lead
9. North American]
10.Tennessee Coal & Iron
11.US Leather
12. US Rubber
Yes, only General Electric remains in the list. The rest are no longer around. Companies come and companies go, it is imperative for the smart investor to know your companies well, not only before but during your course of investing and owning the stocks. Nothing stays forever and the forever can be transient.
2. Market corrections are a normal behavior of markets
A correction is defined by stocks losing their value by 10% or more. A major correction is defined by stocks losing their value by more than 20% and a market crisis is defined by stocks losing their value by more than 40% or more.
Table 1 – S&P 500 Corrections in the past decade from 2011 to 2020
The stock market as represented by the S&P 500 index, corrected by more than 10% in 5 out of the last 10 years in the past decade from 2011 to 2020.
There were 4 market corrections and 1 major correction.
Table 2 – S&P 500 Corrections in 2001 – 2010 decade
There were 2 major crisis and 1 market correction in the 2001 – 2010 decade.
The Dot.com Bubble from Mar 2000 to Oct 2002 led to a 49.15% decline in the stock market and the Global Financial Crisis in Oct 2007 to Mar 2009 which led to a 56.78% decline in the stock market.
Table 3 – S&P 500 Corrections in 1991 – 2000 decade
There were 3 market corrections in the 1991 – 2000 decade.
The worst was the Asian Financial Crisis which started in 1997 hit Wall Street in Jul 1998 which led to a 19.34% decline in the stock market.
Table 4 – S&P 500 Corrections in 1981 – 1990 decade
Black Monday 19 Oct 1997 saw the DJIA fell 508 points or 22.6% in a single day. It was the largest one-day percentage drop in the history of the DJIA. It caused the S&P 500 to perform the worst during the 1981 – 1990 decade, dropping 33.51% over a 4-month period.
Other than this major correction, there was another in 1982 and 3 other corrections in the decade.
Table 5 – S&P 500 Corrections in 1971 – 1980 decade
The 70s were probably one of the most difficult decades for investors. Stocks and bonds had the greatest volatility as inflation reached sky high, as high as 13% by 1979. For a certain period of time, due to rapid rising interest rates, treasury bills even outperformed both stocks and bonds.
The decade saw record corrections of 8 times out of 10 years. The Jan 1973 correction led to a major crisis which saw the S&P 500 sell off by 48.20% due to the oil crisis.
Table 6 – S&P 500 Corrections in 1961 – 1970 decade
The US economy was booming in the 1960s as an increasing number of investors bought stocks throughout the decade, sending the DJIA to 1,000 points for the first time in Jan 1966. The DJIA more than doubled between Feb 1956 and Feb 1966, gaining 111%.
The huge market boom of the 60s bear certain similarities to the boom of the 20s before the onset of the Great Depression in 1928. The bull of the 60s then went into hibernation and the DJIA did not cross the 1,000 points again until 14 years later in Nov 1980.
There were 2 market corrections and 3 major corrections in the 1961 – 1970 decade.
Table 7 – S&P 500 Corrections in 1951 – 1960 decade
The decade started off poorly as the North Korean People’s Army surprised South Korea in Jun 1950 when they crossed the 38th parallel and were within the outskirts of the South Korean capital of Seoul with days, forcing President Harry Truman to secure a UN resolution for military assistance to South Korea. The DJIA fell as President Truman raised income, corporate and excise taxes to record levels to help finance the war.
The 1951 – 1960 decade saw 5 market corrections and 1 major correction.
3. Thrive on Market corrections, Major corrections and Market Crisis
Past history of markets would tell the smart investor that in the past 70 years, there have been a total of 25 market corrections, 7 major corrections and 4 major crisis or 36 out of the past 70 years.
Thus, the smart investor should be prepared for a market correction of at least once every 2 years and a market crisis which can wipe off values by as much as 40% once every 15 years.
In return, the smart investor gets to enjoy a handsome 8% annual return from the market. In particular, markets may surprise as what the S&P 500 did – it delivered a hands-down handsome 13.6% annual return in the last decade 2011 – 2020.
The smart investor should thrive to buy on the cheap and buy on the big during market corrections, major corrections and market crisis. Understandably, this can be easier said than done, notwithstanding a firm understanding of history and the facts.
4. What do you do during market corrections, major corrections and market crisis determine your wealth
Throughout my investing experience nearing 4 decades, it is quite fascinating that the stock market is one area of life where you feel better when prices go up rather than down.
Singaporeans complain a lot, more so if prices of electricity, groceries, petrol and hawker food prices go up. Strangely, this is not so with stocks - they want and prefer stock prices to be higher and higher each other day.
And when stocks go on a tear, what do they do? Most would be looking to double up in prices. But when stocks do go down, and they normally do, as what we have analyzed from above, what do we do? There is a tendency for investors to want to bail out quickly to prevent the negative feelings of going through a market correction and complaints.
5. The price that you pay for your stock will be the key determinant of your future returns
GCP Global is well-known for betting big in times of crisis. This is because the price that you pay for your stock will be the key determinant of your future returns.
However cheap prices for anything – stocks, REITs, real estate only happen during times of market crisis. We have always taught that we should love a crisis, although it is extremely to chug and hum along in one. For sure, it is very difficult to be comfortable investing when financial markets are in turmoil or the economy is tanking or just muddling through like the current state of markets.
Our best returns stamp from years investing during the 19 Oct 1987 market crash, 13 Oct 1989 market crash, Asian Financial Crisis, Dot.com bubble and Global Financial Crisis.
That is why we continue to teach investors to be happy when markets, stocks and REITs go on sale. Do sign up below for our next class on 7 Aug 2021 where we help prepare you for the next market correction, major correction and market crisis.
OUR LATEST MEDIA INTERVIEW IN APRIL 2021 -
1. The Art & Science of Profitable REIT Investing – Money Mastery for SG United, The People’s Association, Wisma Geylang Serai and Supported by the South East Community Development Council of Singapore – 25 May 2021 https://youtu.be/GuUp9mwQsXU
2. Analyzing PBOC’s latest Monetary Policies – 23 May 2021 BUSINESS TECH ASIA https://youtu.be/0X9gB326kvU
3. Awesome Tech FAAMG latest 1Q2021 results – 11 May 2021 BUSINESS TECH ASIA https://youtu.be/EHDKdjyuyVM
4. How to Make Millions in REITs – 30 Apr 2021, FM96.3 HAO in Mandarin
5. How do investors spot REIT mergers that destroy value? – 19 Apr 2021, PRIME TIME MONEY FM89.3
https://www.moneyfm893.sg/guest/gabriel-yap-gcp-global/?fbclid=IwAR0_qCcYb3fEpyCjQ-8zbPxHOSP9FxUaXWWHR-k8KGIDL-zCZleW8kfWCm8
6. Mainland Investors flock to S-REITs – 26 Apr 2021, LIAN HE ZAOBAO
https://www.facebook.com/gabrielyap17/photos/pcb.1315235015518995/1315233215519175/
7. Most S-REIT mergers have destroyed shareholder value? – 16 Apr 2021, BUSINESS TIMES
GCP GLOBAL RECOGNISED AS ASIA’S FOREMOST EDUCATOR IN REITS IN THE SINGAPORE CORPORATE AWARDS 2019
https://www.facebook.com/gabrielyap17/videos/740467253053012/
REITS FOR A GOOD CAUSE
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OUR NEXT UPCOMING CLASS WHERE WE HELP PREPARE YOU FOR THE NEXT CORRECTION -
OUR LATEST PUBLICATIONS -
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https://gcpglobalsg.wixsite.com/gcpglobal/post/separating-the-sheep-from-the-goat-in-s-reits
2. WHERE & HOW to make your next Million in the Year of the Ox
3. 7th Year Itch for S-REITs and its severe ramifications for the REIT investor
https://gcpglobalsg.wixsite.com/gcpglobal/post/7th-seven-year-itch-for-s-reits-its-severe-ramifications
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5. Tripling Your Money with Global Tech stocks
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