Financial Advisor wrote:
la gente esta muy loca wrote:
His 3 month t- bill calculations are wrong. Anyone that has any background in FI can tell just by looking at his chart.
Agreed. There’s obviously no way t-bills came anywhere close to what the S&P 500 did during that period.
I don’t know if Hussman is purposely being misleading, or if he is just an incompetent fool.
I don’t necessarily conclude who is correct here, nor will I spend an inordinate amount of time defending Hussman. Hussman’s data is 8/1959 thru 8/1982 in his piece. Most of the criticism becomes personality, like Shiller or Grantham, when in reality it should be a valuation debate. You either believe that price matters or you don’t.
Moving on, the inflation adjusted return (by the calculator below-not verifying its factual nature) on a $100 investment in the S&P 500 made on 1/1/1959 thru 1/1/1982 is negative. Furthermore, I would assume, and knowing something of that period, having purchased a house at 11.9% interest, that T-Bill yields during that were indeed high. I also had a passbook account at Brentwood Savings in the early 1970s that was well over 5%.
“The nominal return on investment of $100 is $538.49, or 538.49%. This means by 1982 you would have $638.49 in your pocket.
However, it's important to take into account the effect of inflation when considering an investment and especially a long-term investment. You can convert S&P returns to their real (inflation-adjusted) value using an inflation calculation based on the U.S. Bureau of Labor Statistics Consumer Price Index (CPI).
In the case of the returns described above, the CPI in 1959 was 29.100 and the CPI in 1982 was 96.500.
The ratio between these CPIs describes how relative buying power of a dollar has changed over 23 years.
Adjusted for inflation, the $638.49 nominal end value of the original $100 investment would have a real value of roughly $92.54 in 1959 dollars. This means the inflation-adjusted return is 92.54% as opposed to the original 538.49%.
For more information on inflation, see our U.S. inflation calculator for 1959.”