On 2013-02-02, F George McDuffee wrote:
On Fri, 01 Feb 2013 18:46:34 -0600, Ignoramus17564
wrote:

On 2013-02-01, F George McDuffee wrote:
On Sun, 27 Jan 2013 21:42:13 -0600, Martin Eastburn
wrote:
snip
The big lie is simply a lot of the companies that went bust were
in the Dow and they were replaced with other companies.

In other words - the books have been cooked - slowly but the name
never changed.

Should be the New Dow or the 2012 Dow..... Dow12 maybe now the Dow13.
snip
==========

Even if there were no change in the composition of the Dow,
this neglects the effects of inflation.

Dow 14000

Oct 2007 CPIU 208.936
http://www.bls.gov/news.release/arch...i_11152007.pdf

Dec 2012 CPIU 229.601
http://www.bls.gov/news.release/pdf/cpi.pdf

Inflation C/F 1.0989058851

Oct 2007 Dow
in Dec 2012$ 15384.68

In inflation adjusted terms a 14,000 Jan 2013 Dow,
neglecting change of component companies, is down 9%
compared to a 14,000 Oct 2007 Dow.

When the combined effects of the change of base and the
understating ("adjustment") of the CPI-U are considered, the
shortfall is much greater. Unless you own a brokerage or
are a broker, the market is a sucker's game.

Keep in mind that the Dow is net of dividends.

Assuming it was 4 percent for the years discussed, the dividend yield
would have added about 25% to the above discussed return. 25% minus 9%
is 13 percent return, which is not much to brag about, but better than
one would get from banks. The calculation is not quite exact.

For an in depth discussion of this, read this article:

http://online.wsj.com/article/SB1000...285657442.html

i
==========

Yes, but the time value of money/opportunity cost and tax
effect were not considered either.

For example, if the Dow had gone to 15,384 and you bought at
14,000 in 2007, you would still loose if you sold because
you would pay tax, even if it is at capital gains rate of
20%, on the inflation "profit" of 1,384. 1,384/0.8 = 346 or
a total of 15,731 to "gross up" to zero, and this neglects
the time value of money (5 years) / opportunity cost. Any
dividends would have been taxed at ordinary income rates
[20-30%], reducing their contribution.

Compounded time value of money at 5% for 14,000 at 5 years
is 1.05^5 * 14,000 = 1.2762815625 * 14,000 = 3,868.

In a more complete analysis, the Dow would have to be at
least 19,600 when tax effect and time value of money @ 5%
compounded [inflation and tax effect excluded] is included
just to break even. When tax effect and inflation are
considered on the time value of money/opportunity cost, we
are over 20K for a break-even Dow.[And now you know where
your retirement went.]

Your understanding of opportunity cost is incorrect. Opportunity cost
is what you could make doing "something else" that is easily
available.

Examples of such things are
1) Doing nothing with money (keeping cash in a mattress,
not the worst option in life)
2) Investing in government securities

None of these produced comparable returns.



In the casino called the market, not only does the house have an
edge, the cards are marked and the dice are loaded...

I simply go by the price of what I pay in relation to value, and it
seems to work out OK.

i