So what happened with the DOW today −457.21

[progree]

32. I struggle a lot with which view is the more distorted one - linear or logarithmic

Last edited Wed May 13, 2020, 05:09 AM - Edit history (4)

I keep going back and forth between the two views and scratching my head.

After several doublings, an occasional halving is not a big deal. Especially ones where the recovery period from the peak to reaching that peak value again is only 7.2 years (dot com crash) and 5.5 years (housing bubble crash). And these recovery periods don't include reinvested dividends, they are just based on S&P 500 index values.

But yeah, a 57% drop, like occurred peak-to-trough in the housing bubble crash (S&P 500 index) ought to look like, well, a 57% drop. (Au similar the 48% drop in the '73-'74 crash and the 49% drop in the dot-com crash).

Probably the biggest distortion in both graphs is not including reinvested dividends. That wouldn't affect the recovery periods above much, but it definitely affects 50 year and 100 year graphs.

Over the last 59 years, from 1960 through 2019 the S&P 500 dividend yield was 2.98% (arithmetic average)
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/spearn.htm
which has a link to the spreadsheet version

For example, over 59 years, $1 at 7% compounds to $54.16. At 10% it compounds to $276.80 -- a figure 5.1 X as large. That's an example of what happens when one includes 3% reinvested dividends.

The same numbers with a more modern 2% dividend yield:

For example, over 59 years, $1 at 7% compounds to $54.16. At 9% it compounds to $161.50 -- a figure 3.0 X as large.