I have to admit that my statistics model was walloped. Hey I was wrong, and that happens.
About a year ago I did simple trend analysis of the long term DOW (since 1929) and what I saw I did not like. It said that we would reach levels that we are at now. So why did I not talk about that? Because I thought it was a statistical outlier and hence not likely…
Though I am glad I did not completely believe my models since I bought in dribs and drabs and hence still have enough cash to plow into the market.
Let’s look at the long term analysis of the S&P since 1950.
We have pierced the long term trend by quite a margin. And we pierced it by quite a bit. In 1974 we pierced the long term trend, like now. I strategically connected the bottom of 1960 with the bottom of 2001.
There some interesting things with this trend. The year 2000 bubble was quite a bubble and we returned to the trend. The years thereafter had a bit of a pop, but generally speaking we did not go crazy like before. This is unlike the years 1970 to 1973.
We are gyrating along the bottom here because the long term investors know that prices are good, but only so long as they stay at these depressed bottom levels. Look at the years 1974 to 1980, and there was no movement. Thus to get any returns whatsoever you need to keep buying at the bottom.
With algorithmic trading this is not a problem because you can just keep buying at the low levels without affecting the market. Add on the dividends and your return would actually be quite nicely.