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Astute observers will note that the $1 in stocks gets margin called shortly after the initial investment in the late 20's and so in a sense the return over 100
by actinium226 1y ago
Astute observers will note that the $1 in stocks gets margin called shortly after the initial investment in the late 20's and so in a sense the return over 100 years is 0.
- ashdksnndck 1y agoThe title doesn’t mention owning stock on margin.
- mjburgess 1y agoBut nor does it include owning stocks in companies that go out of business, or indeed, nations.
- ashdksnndck 1y agoI think that’s generally included when you compute total return of an index. For example, Enron should be part of the drop shown in 2001.
- throw0101c 1y ago> But nor does it include owning stocks in companies that go out of business, or indeed, nations. Which is why you invest in the entire market, internationally diversified. There are now funds (mutual/ETF) that allow you to do this with a single purchase: * https://www.finiki.org/wiki/Asset_allocation_ETF https://www.finiki.org/wiki/Asset_allocation_ETF
- floundy 1y agoIncorrect, the DJIA lost around 90% of its index value in the Great Depression, so the theoretical portfolio in this exercise would have declined to around 10 cents, but holding an asset at a negative return does not result in a margin call if one is not trading with leverage. In practice, it would have been a toss-up between individuals' outcomes because index funds as we are familiar with them today did not exist at the time. The DJIA was a price index but there was no way to invest in the DJIA basket as there is today, so brokers picked stocks on behalf of investors. So it's certain that some investors' portfolios did decline to zero during this time due to bankruptcies of all the companies they happened to be holding.
- actinium226 1y agoCrickee you're entirely correct, the negative part of the graph is simply ROI and not value. Thank you for the correction.