Why did the stock market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and DJIA

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jdamo
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Why did the stock market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and DJIA

Post by jdamo » Mon Oct 14, 2019 9:34 am

Sorry - meant Stock market obviously. Pardon me. My typing....I just noticed and I cant change the subject line apparently. When looking at a plot of the S&P 500 or the Dow Jones industrial average on the max time scale it looks like a hockey stick starting in post 1973 or so, on up to today with a few drops for some correction but nevertheless up a lot. Why is this so? Is it because we left the gold standard? It just seems like it might be “artificial“ versus real increase in company performance? I have always wondered about this despite all the financial press etc. What do the experts think? And can retirees depend on investing at the top of the market so to speak?
Thanks

[Post title edited by moderator oldcomputerguy - "stick market" -> "stock market"]
Last edited by jdamo on Mon Oct 14, 2019 2:05 pm, edited 1 time in total.

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by quisp65 » Mon Oct 14, 2019 9:40 am

The 401K started at this time around 1973 and this inflated and changed the market.

I think there a few significant market changes.

The post war period of the 50s.
The birth of 401Ks in the 70s and a gradual uptick.
The internet boom of the 90s that brought a large amount of cash and connected many to the market.
...and maybe some might say the low interest rate boom that brought up our current market... but you can keep getting more insignificant and work your way down, but I think the invention of the 401k is a big one.
Last edited by quisp65 on Mon Oct 14, 2019 9:49 am, edited 1 time in total.

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by jdamo » Mon Oct 14, 2019 9:49 am

Ok thanks. I guess then that “flooded“ more money into the market and drove prices up ? If so, that is amazing to me that it brought so much more money into the market. But I admit I have not studied such things.

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by denali98 » Mon Oct 14, 2019 9:52 am

Possibly part of the answer:

Are you looking at this as the raw value of the index?
This could exaggerate the recent, and flatten the past.

Plot the same data using logarithms, and the effect might produce a wavy line slanting upwards and to the right.

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by JoMoney » Mon Oct 14, 2019 9:54 am

...why did the stick market start a "hockey stick"...
stick market... that's funny :D

FWIW, I think you're looking at the wrong kind of chart. If you look at a a log scaled chart it makes adjustments for the fact that 10% growth on a large number is a much larger number than 10% growth on a smaller number despite representing the same gain. If you don't scale the graph properly it can distort things.
If you're not looking at a "Total Return" chart, you're missing the impact of dividends. The payout ratio for companies has gone way down in recent decades, that cash payout from dividends has an impact on the companies price return. If you're only looking at a price return chart it's likely to have slower capital gains growth.

This is what a properly scaled, Total Return (including dividends) chart looks like. I don't see the stick ;)
Image
Last edited by JoMoney on Mon Oct 14, 2019 9:59 am, edited 1 time in total.
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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by jdamo » Mon Oct 14, 2019 9:57 am

Yes I was just looking at a raw data normal plot from Yahoo finance app. So what is the meaning of a straight line up on a logarithmic plot? Is that an exponential growth? I’m trying to remember my math from college.! Or is it just the growth in population in the US and more investing in stocks?.

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by firebirdparts » Mon Oct 14, 2019 9:58 am

I charted total returns on a logarithmic scale, and it really looks pretty tame to me. There is as you say a steep section from 1973 to 1999, but then it zig-zagged the other way. When you look at 1973 until 2019 it's not that remarkable.

On a linear scale, it should look like a hockey stick, and a sharp spot in the right place might look more significant than it really is. My opinion.
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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by denali98 » Mon Oct 14, 2019 10:06 am

The linearity up and right means essentially a constant percentage increase. Percentage increase is what counts, of course.
The linearity up and right is also your awesome house edge as a Boglehead.

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by JoMoney » Mon Oct 14, 2019 10:10 am

I went over to Yahoo finance and brought up the ^SP500TR index (Total Return including dividends)
Unfortunately Yahoo finance uses the TR index that started in 1987 ( S&P had a different version of the index before then, that revinvested dividends on a different schedule - less frequently than daily).
I then clicked on the chart, and then the gear icon and picked "Logarithmic" ... the chart I see does have a bit of a bubble in the late 1990's, but otherwise... not really a hockey stick.
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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by nedsaid » Mon Oct 14, 2019 10:12 am

JoMoney wrote:
Mon Oct 14, 2019 10:10 am
I went over to Yahoo finance and brought up the ^SP500TR index (Total Return including dividends)
Unfortunately Yahoo finance uses the TR index that started in 1987 ( S&P had a different version of the index before then, that revinvested dividends on a different schedule - less frequently than daily).
I then clicked on the chart, and then the gear icon and picked "Logarithmic" ... the chart I see does have a bit of a bubble in the late 1990's, but otherwise... not really a hockey stick.
How can the US Market be a hockey stick when it was essentially flat from 2000 through 2012? Also, we are not far above where we were in January 2018. We are not in a market melt-up.
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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by JoMoney » Mon Oct 14, 2019 10:22 am

I like Prof. Jeremy Siegel's inflation adjusted real-return graph from his lectures and book "Stocks For The Long Run"
Image
The way Prof. Siegel talks about the consistency of the U.S. markets roughly 7% inflation adjusted return, it was mockingly dubbed "The Siegel Constant"
Last edited by JoMoney on Mon Oct 14, 2019 10:33 am, edited 2 times in total.
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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by nisiprius » Mon Oct 14, 2019 10:30 am

jdamo wrote:
Mon Oct 14, 2019 9:57 am
Yes I was just looking at a raw data normal plot from Yahoo finance app. So what is the meaning of a straight line up on a logarithmic plot? Is that an exponential growth? I’m trying to remember my math from college...
Yes, it's as simple as that.

Day-to-day changes in value might be reasonably plotted on an ordinary, linear scale because it doesn't make much difference.

Over any long period of time, the natural plot for financial data is a "semilog plot," with the Y axis plotted logarithmically. That's because investments naturally grow exponentially. They grow by an annual percentage of the whole. If you invest $10,000 into some investment that grows 10% annually, you have $10,000 + $1,000 = $11,000 at the end of a year. If you invest $20,000 into that same investment, you have $20,000 + $2,000 = $22,000, not $21,000.

Over long periods of time, investments approximately follow the "rule of 72" which tells how long it takes to double your money: it's 72 divided by the annual percentage increase. Thus, if the stock market earns 7.2% per year, then money in the stock market doubles every ten years: $10,000, then $20,000, then $40,000 (not $30,000), then $80,000 (not $40,000).

Over any longish period of time, including many doublings, the period of time starts out with the value so small it stays crammed close to the X axis for a long time. So it always has that "hockey stick" appearance, but it is illusory and the visual position of the "bend" depends, not on anything in reality, but the choice of start and end points and scaling factor.

Image

On a linear scale, plot the growth of the Vanguard Wellington Fund from 1929 to the 1975 and it looks like it "took off" somewhere in 1950-1960.

Image

But plot it from 1929 to 2019 and it looks like it "took off" around 1995. Whatever happened in 1950-1960 is still there, but you can't see it!

Unless you're looking at short-term price movements--which, as Bogleheads, we shouldn't be--you should be very suspicious of any financial chart with a linear Y axis. Either someone is being lazy and sloppy, or they are trying to prove some point--dishonestly.
Last edited by nisiprius on Mon Oct 14, 2019 11:32 am, edited 1 time in total.
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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by jdamo » Mon Oct 14, 2019 10:56 am

Thank you for this reply. Yes I am aware of the rule of 72 but good explanation. Thanks. and also that was a good explanation on the exponential growth. I had not thought about the graphing aspects of it minimizing early time so this was very helpful in my macro thoughts on the issue. Now I wonder the effects of inflation need to be taken out because the government is just printing money?

But I also realize as a good Bogle head I should not look at short term things
Nevertheless this was a long-term ““ look at the stock market plots so your points are very helpful.

So longer-term investing from now still comes down to whether or not you think the stock market is a good investment over the long term and that companies will keep prospering and increased their output but it seems to me. Are there any other any other things to think of I missed? By the way I am following the major index Bogle head investing recommendation according to my risk tolerance and asset allocation.

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by Ferdinand2014 » Mon Oct 14, 2019 9:49 pm

jdamo wrote:
Mon Oct 14, 2019 9:34 am
Sorry - meant Stock market obviously. Pardon me. My typing....I just noticed and I cant change the subject line apparently. When looking at a plot of the S&P 500 or the Dow Jones industrial average on the max time scale it looks like a hockey stick starting in post 1973 or so, on up to today with a few drops for some correction but nevertheless up a lot. Why is this so? Is it because we left the gold standard? It just seems like it might be “artificial“ versus real increase in company performance? I have always wondered about this despite all the financial press etc. What do the experts think? And can retirees depend on investing at the top of the market so to speak?
Thanks
It is because you are looking at non-logarithmic scale. A logarithmic scale will apply a change multiple (annual percent change) at equidistant (yearly) points, thereby making it non compounding
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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by MathWizard » Mon Oct 14, 2019 10:15 pm

I agree you need to look at a logarithmic scale.

Also, what is typically shown in the graph is the value of the djia or sp500 . Remember that this is after dividends are paid.

Recently, for a number of factors, companies have reduced dividends. Now for example, the dividend yield of the SP500 has been between 1 and 2% since the mid 90s, where before that, it ranged between 3 and 5%. That extra 1 to 3% per year is now retained earnings or share buybacks, which both increase the stock price.

Add in the much higher PE ratios since the mid 90's, which is due to increased speculation, and you have the value of the index rising much faster in recent history, even if total return has stayed steady or dropped. You just don't see total return in the graph of the raw index.

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by Northern Flicker » Mon Oct 14, 2019 10:42 pm

JoMoney wrote:
Mon Oct 14, 2019 10:22 am
I like Prof. Jeremy Siegel's inflation adjusted real-return graph from his lectures and book "Stocks For The Long Run"
Image
The way Prof. Siegel talks about the consistency of the U.S. markets roughly 7% inflation adjusted return, it was mockingly dubbed "The Siegel Constant"
When I look at that chart with respect to the real return of t-bills vs bonds, the question that leaps out for me is: will the outperformance of bonds vs bills in real terms since 1981 mean-revert, as all such outperformances in the past have done?
Index fund investor since 1987.

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by jdamo » Mon Oct 14, 2019 11:48 pm

Thanks to all for the good discussions. It helps a lot. So the long-term log scale looks pretty linear up and seems to support the long-term view that the market goes up in the long term and beats inflation hence I will stick with my asset allocation and let things work over time. And quit looking at linear plots of the market. Plus I can’t think of any better investing opportunity than Investing in the long-term optimism of capitalism via indexes and the intelligent market. I will quit thinking we are at the top of a bubble. The linear log plot helped. Thank you.

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by jdamo » Mon Oct 14, 2019 11:50 pm

P. S. I mean total return log plot including dividends

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by mortfree » Tue Oct 15, 2019 1:08 am

Was that around the time the NHL expanded to more teams thus more hockey sticks were manufactured?

:sharebeer

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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by CyclingDuo » Tue Oct 15, 2019 6:58 am

jdamo wrote:
Mon Oct 14, 2019 9:34 am
Sorry - meant Stock market obviously. Pardon me. My typing....I just noticed and I cant change the subject line apparently. When looking at a plot of the S&P 500 or the Dow Jones industrial average on the max time scale it looks like a hockey stick starting in post 1973 or so, on up to today with a few drops for some correction but nevertheless up a lot. Why is this so? Is it because we left the gold standard? It just seems like it might be “artificial“ versus real increase in company performance? I have always wondered about this despite all the financial press etc. What do the experts think? And can retirees depend on investing at the top of the market so to speak?
Thanks
Feel free to follow along...

https://www.yardeni.com/pub/sp500corrbear.pdf
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How to change the subject line of a thread you created

Post by nisiprius » Tue Oct 15, 2019 7:22 am

jdamo, you should be able to change the subject line yourself. I'm not a moderator so I can't change it for you. Go to your initial post, click the little "pencil" icon to edit it. The "Subject:" box above the edit box is editable. Change "stick" to "stock" and submit.

The subject field usually just sets the subject line for one post, but when it is the first post in the thread it also changes the title of the whole thread.
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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by RJC » Tue Oct 15, 2019 7:40 am

JoMoney wrote:
Mon Oct 14, 2019 10:22 am
I like Prof. Jeremy Siegel's inflation adjusted real-return graph from his lectures and book "Stocks For The Long Run"
Image
The way Prof. Siegel talks about the consistency of the U.S. markets roughly 7% inflation adjusted return, it was mockingly dubbed "The Siegel Constant"
Does this mean that recent discussion about 3-4% real is just an anomaly and that it should revert back to a mean of 7%?

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Re: How to change the subject line of a thread you created

Post by oldcomputerguy » Tue Oct 15, 2019 7:47 am

nisiprius wrote:
Tue Oct 15, 2019 7:22 am
The subject field usually just sets the subject line for one post, but when it is the first post in the thread it also changes the title of the whole thread.
It does change the title that shows up in the home page list of posts, but not the title of reply posts that have already been made in the thread. It does apply to new posts that are made after the change is made. Any posts that are replying to posts with the incorrect spelling will carry the spelling along with the reply. (For example, note that the title of this post comes from the title of Nisiprius' post, not the title of the OP, because I replied to that post.)

I edited the title of the OP's post to change "stick" to "stock".
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Re: Why did the stick market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by JoMoney » Tue Oct 15, 2019 7:48 am

RJC wrote:
Tue Oct 15, 2019 7:40 am
...
Does this mean that recent discussion about 3-4% real is just an anomaly and that it should revert back to a mean of 7%?
No.
... and even at that, to re-use something I posted in another thread, it could be at 2% over the next decade and still be within historical ranges
Image
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Re: Why did the stock market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by jdamo » Tue Oct 15, 2019 8:00 am

Thanks for fixing the title on new posts.

Wow that is a good plot of the historical trend lines that was posted. What program do you use to plot search plots? Is that MorningStar? Is it worth the premium subscription?

I will check out the other thread posted. Thanks to all who commented I appreciate it

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Re: Why did the stock market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by jdamo » Tue Oct 15, 2019 8:29 am

Also a 2% long-term growth of the stock market is surprisingly low given that the government is printing money with a target of inflation of 2%. I guess that’s the real question, Whether companies will be able to generate profits and hence the stock price increases over time at a rate greater than inflation. Or should we put more money in bonds that are more guaranteed, however they are still based on companies repaying the “contracts” of a bond? Interesting long term plot on semilog axis. Is there a fundamental change going forward that would make us reconsider our asset allocation to a riskier profile to try to capture more yield and fund retirement cash flow?

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Re: Why did the stock market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by JoMoney » Tue Oct 15, 2019 8:31 am

jdamo wrote:
Tue Oct 15, 2019 8:00 am
...
Wow that is a good plot of the historical trend lines that was posted. What program do you use to plot search plots? Is that MorningStar? Is it worth the premium subscription?
...
In reverse order:
-I don't have a Morningstar subscription. I don't think it would be worthwhile to me. I have a pretty simple portfolio and investment plan that doesn't require much to maintain. There's lots of data freely available on the S&P 500, it's history, and analyst future expectations.
-Yes, it's a growth chart built on the old Morningstar webpage (which is still active for now, click on the pic for a link)
-I just take a screen shot, crop it and paste it into Google-Slides (similar to Powerpoint), draw a line that touches the peaks, measure the return between the dates that are the peaks in a CAGR calc, and duplicate the same line to be at the bottom and midway between top and bottom.
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Re: Why did the stock market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by JoMoney » Tue Oct 15, 2019 8:33 am

jdamo wrote:
Tue Oct 15, 2019 8:29 am
Also a 2% long-term growth of the stock market is surprisingly low given that the government is printing money with a target of inflation of 2%. I guess that’s the real question, Whether companies will be able to generate profits and hence the stock price increases over time at a rate greater than inflation. Or should we put more money in bonds that are more guaranteed, however they are still based on companies repaying the “contracts” of a bond? Interesting long term plot on semilog axis. Is there a fundamental change going forward that would make us reconsider our asset allocation to a riskier profile to try to capture more yield and fund retirement cash flow?
The historical range could put it anywhere between 2%-13% over the next decade, and still be within the historical range...
Maybe "this time it's different". I don't know.
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Re: Why did the stock market start a “hockey stick” run up since about post 1973 or so? You can see this in SP500 and

Post by jdamo » Tue Oct 15, 2019 9:55 am

I see your point but I still wonder if economic times are different going forward the way the Fed is acting. For instance this quantitative easing. Then the pseudo-easing to keep the markets / overnight transfers working ...burdens on companies increasing...it just seems everything is flattening out and not functioning like it used to. Profits harder to make?...poorer long term outlook??

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