Winning the Arguments about Market

It’s simple really. Just change the time horizon so it suits your

I’ve seen this play out over everyone’s favorite yellow metal the past few years. Gold is down almost 40% since it peaked in 2011. But it’s still up almost 350% since 2000. Although since 1980, on an inflation-adjusted basis, it’s basically flat. However, since the early-1970s it’s up over 7% per year (or about 3.4% after inflation).

See what I did there? There’s ammunition for both sides of the gold trade to use to their advantage.

Anytime an investor cites an exact time series with precise start and end dates to drive home their argument, it’s a good bet that they weren’t invested over that time horizon. The amount of data available to investors right now is both a blessing and a curse because you can always find something that adds to your confirmation bias.

Over the last 1 year the Nifty is up over 40% per year, while the 5 year returns are almost 10% annually. It’s been on fire. But if you go back to the inception, the Nifty is on up around 11% a year.

If you think about it, there’s no way that stocks in the US market return 9.6% a year over the entire 1928-2014 time frame if we didn’t have the Great Depression, the 1966-1982 sideways grind, the tech bust or the Great Recession. Those periods of risk are a necessary evil.

Japan is a perfect example of this at an extreme level. Japanese stocks have returned -0.7% per year since 1989. Yes, negative returns for more than 25 years. This is the ultimate example people use to play devil’s advocate against buy and hold investing. But since 1970, Japanese stocks are up 9.3% per year. This is because they rose nearly 23% on an annual basis from 1970-1989. That’s how huge the bubble was in Japan.

Your timing as an investor (something you have no control over whatsoever) can almost completely explain how you view the markets.

It’s very easy to cherry-pick historical data that fits your narrative to prove a point about the markets. It doesn’t necessarily mean you’re right or wrong. It just means that the markets are full of conflicting evidence because the results over most time frames are nowhere close to average.

If the performance of the markets was predictable over any given time horizon, there would be no risk.

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