The Myth of Long Term Investing

Everyone knows that in the long run stocks always go up. Our brokers and the smart people on TV have fancy graphs they show us that prove that over the long term, stocks only go up. They tell us that yes, from time to time there will be this nasty thing called a bear market, but if you just hold on in the "long run" You'll be just fine.

Well, in real terms that long run is an awfully long time. What brokers like to show you is the nominal value on the S&P500 or the Dow. What none of them would be willing to show you is the inflation adjusted chart, because if they did no one would believe in buy and hold investing. The chart I have posted here shows the Inflation Adjusted price of the S*P500 from 1967 until 1996. You will notice that after the peak in 1969 it was 23 years (1992) until the buy and hold faithful got back to breakeven. After the 1969 peak real gains did not exceed that of T-Bills until 1996. A part of the graph I do not have here is the peak in 1929. After that peak it was 37 years in inflation adjusted terms until a long term investor got back to breakeven. In more recent times Nasdaq investors are still nowhere near breakeven even in nominal terms, let alone inflation adjusted terms, since the peak in March of 2000.

What I don't want this article to make you think is that its hopeless to try to make money over the long term in the stock market. Myself and many other traders and investors are living proof that this is not true. However, you should always be concerned about your downside. The very best trader is not the one with the best return, but with the best risk adjusted return. You also need to be open to other asset classes, not just stocks.