Follow me on twitter: https://twitter.com/ldaalder
If you are an active reader of weblogs (which you probably are, if you are reading this), you have probably seen the following chart doing the rounds:
http://uk.businessinsider.com/gundlach-bear-case-for-stocks-2015-1
It’s a chart taken from a presentation by Jeffrey Gundlach, the founder of DoubleLine Capital. Its shows that the current string of uninterrupted years with the S&P500 ending the year higher has reached six, which is the record only reached once before in the 1898-1903 period. This looks ominous for the stock market in 2015, especially if we focus on that “-18% price correction!” tag in the chart.
Should we be worried? As an investor, you should always be worried, but not by this chart. Apart from the fact that the absolute price return of 2011 only reached 0,14% in 2011 (selling 100 thousand Apple shares in the close of 31 December 2011 could have saved us from doom!), see what happens to the chart if we change the calendar convention to April-April, instead of the classic December-December…
Twelve years! We aren’t even half way there! That is not to say that we could be facing a correction this year, but I would advise not to make that call on the basis of this one chart. It has too high a how-to-lie-with-statistics ring to it.
Pingback: Best of the Web: 15-01-16, nr 1145 | Best of the Web
Pingback: Best in Economics this week: January 16 | Best of the Web
You actually don’t even need to change from calendar year. The doubleline chart is wrong. It’s a major data fail on Doublelines part and I show why here http://www.wallstreetrant.com/2015/01/doubleline-data-fail-stock-market-has.html . The market was up 8 years 1982-1989 and then 9 years 1991-1999.
Well, to the defence of Doubleline: I took the data from the Shiller database and got exactly the same graph as them. So, if there is some data mix-up, it is one that is more common.
It only shows that working with a binary chart even if a year is closed with minimum gains or loses (0.25%) is a tricky thing to do.
Just read your piece, which clears up the Shiller database for me. Thanks!
Pingback: Best of the Web: 15-02-02, nr 1156 | Best of the Web