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FPURX from Jan '73 to summer '82, Ray Gun era, way more than doubles. Granted the end period was a time of 15% inflation
\\\ Inflation in 1974 (the era of Watergate and Whip Inflation Now) was about the same as inflation in 1980 - a shade over 12%. There was no calendar year with 15% inflation. It peaked at 13¼% in 1979.
As so often, I cannot tell your point except to be contrary.
Calendar year, huh.
Undergoing a divorce at the time I cashed in my ex's CDs ...
\\\ three-month CDs in early May 1981 paid about 18.3 percent APY, according to data from the St. Louis Federal Reserve.
but I did not want to exaggerate in my post lest I be rebutted.
\\\ Adjusted for inflation, the cumulative return of the S&P 500 over the calendar years 1973-1984 was 0.0266%. Unadjusted, it was 148%.
Yes, why I chose a balanced fund. Is FPURX an outlier? Should I have chosen something other?
\\\ In a time when fund managers could get inside information (no Reg FD), it wasn't hard for managers to beat the market. Puritan was especially successful, but lots of well known stock and balanced funds beat that 148% nominal return, such as VWINX (211%), FFIDX (201%), DODGX (193%), VWELX (175%).
Ah, that must be it. Entirely! Of course the two middle ones are stock funds, no?
So ... is there a point here?
I am still missing the direness of the problem, as I thought perhaps you were too.
\\\FPURX from Jan '73 to summer '82, Ray Gun era, way more than doubles. Granted the end period was a time of 15% inflation
\\\ Inflation in 1974 (the era of Watergate and Whip Inflation Now) was about the same as inflation in 1980 - a shade over 12%. There was no calendar year with 15% inflation. It peaked at 13¼% in 1979.
As so often, I cannot tell your point except to be contrary.
The points are that memories fade, people remember things as worse (or better) than they were (back when I went to school I walked ten miles in the snow uphill both ways), and that it's easy enough to pull up the actual data if the numbers support what people remember. Such as ...
\\\ three-month CDs in early May 1981 paid about 18.3 percent APY, according to data from the St. Louis Federal Reserve.
Interesting factoid, but only circumstantial evidence of inflation. Connect the dots. What was the spread between CD rates and inflation? It may be negative now (CDs yielding less than inflation), but that doesn't mean that CDs weren't providing significant real returns in the 80s. They were, and without knowing that spread, we can't say much about the inflation rate from CDs.
Also, it's easy enough to link to sources if one is so inclined. Since you like the St. Louis Fed, here's its inflation data in tabular and graphic forms.
to summer '82 ... the end period was a time of 15% inflation You questioned my selection of calendar year figures. What would you have preferred? Annual inflation as of the summer of '82? FPURX hit its 1982 peak on June 15th.
If my point were to be contrary, I'd quibble that this date wasn't in the summer. But my intent is to look at real data, not faded memories. So let's look at June 1982. Prices had risen over the past 12 months (not calendar year) by 7.1%. Less than half of 15%. (Source: BLS)
You wrote (pardon my paraphrasing) that you couldn't understand how investments such as FPURX could rise so much in nominal terms (1973-1984) while the market just broke even in real terms (Hulbert). By conceding that inflation was high at the "end period" of 1973-summer 1982, you implied that inflation was not so high at other times as to explain the apparent contradiction.
My response in part was to point out (with actual data) that your memory of inflation was fuzzy. Though inflation in the "end period" was not quite as high as you remembered, it was high throughout the 12 year span and in fact was virtually as high in 1974 as it was in 1980. That goes part of the way to explaining what you saw as a contradiction.
The rest of the explanation had to do with your selection of reference fund. There were multiple issues there.
\\\ Adjusted for inflation, the cumulative return of the S&P 500 over the calendar years 1973-1984 was 0.0266%. Unadjusted, it was 148%.
Yes, why I chose a balanced fund. Is FPURX an outlier? Should I have chosen something other?
As I showed in the data below, FPURX well outperformed reputable, well known peers. Those peers, VWINX and VWELX still demonstrated your point (that balanced funds could outperform the market) while looking less like cherry picking.
\\\ In a time when fund managers could get inside information (no Reg FD), it wasn't hard for managers to beat the market. Puritan was especially successful, but lots of well known stock and balanced funds beat that 148% nominal return, such as VWINX (211%), FFIDX (201%), DODGX (193%), VWELX (175%).
Ah, that must be it. Entirely! Of course the two middle ones are stock funds, no?
So ... is there a point here?
The fact that stock funds could perform as well as balanced funds suggests that it might not be stocks vs. bonds, but rather active vs. passive. As I noted, it was not that difficult for well researched and well connected active management to outperform. Merely showing that an outlier balanced fund (or a typical balanced fund) outperformed the market is not sufficient to show that the bond sleeve helped. Not when pure stock funds were achieving similar returns.
Bonds may not even have helped. It depends on which bonds and how they were used. In nominal terms, S&P 500 returned 148% over12 years, 1983-1984 and 10 year Treasuries just 110%, though Baa corporates returned 168%. Data again from NYU/Stern spreadsheet.
Indeed. Another venerable balanced fund, PGEOX, outperformed FPURX for 8.5 years starting 12/31/64, before falling behind in the last 1.5 years of that 10 year span.
Funds are not static, they evolve and adapt.
For example, in 2008, Puritan explicitly changed from "emphasizing above-average income-producing equity securities, which tends to lead to investments in stocks that have more 'value' characteristics than 'growth' characteristics" to a fund that "is not constrained by any particular investment style. At any given time, FMR may tend to buy 'growth' stocks or 'value' stocks, or a combination of both types."
Here are descriptions of how a couple of its peers changed over decades:
Initially focusing on a simple mix of blue-chip stocks and high-grade bonds, [the George Putnam Balanced Fund] has expanded its universe over the years, incorporating international equities, high-yield bonds, and even alternative investments to diversify and enhance returns.
The management of the fund has also transitioned from a primarily fundamental, research-driven approach to one that incorporates technical analysis and global economic trends. This evolution reflects the fund’s commitment to maintaining its foundational principles while adapting to the complexities of the modern financial world. ... Originally a hybrid of stocks and bonds, the[Wellington] fund has continually recalibrated its asset mix in response to economic cycles. During periods of market exuberance, such as the post-World War II boom and the late 20th-century bull markets, the fund shifted towards a higher allocation in stocks to capture growth.
Conversely, in times of economic downturns and uncertainties, like the oil crises of the 1970s and the financial crisis of 2008, the fund increased its bond holdings, prioritizing capital preservation and income. The Wellington Fund’s management has been characterized by a blend of historical wisdom and a forward-looking approach, consistently adapting to the ever-evolving market dynamics.
Whether these and other fund changes have handled markets in good times and bad I leave for others to decide. The point here (since someone keeps asking me what the point is) is that these may not be your father's (or your grandfather's) funds. It's fun to see how they did half a century ago, but is it meaningful?
I cringe when people talk about stocks for all times and talk only about good times. People have to deal with markets they are in. So, these historical data are useful for perspectives.
In the charts above, I tried to add SP500 but couldn't. I looked up SP500 index data:
12/1964 84.75 12/1974 68.56
That was -19.10% index return during that 10-yr period. I couldn't find reinvested SP500 TR for that period - I think that it still would be negative. In that time, VWELX was just flat, but DODBX and FPURX were positive. Did the people investing in 1965 know this? If not, what would have been a prudent course, especially if decumulation in retirement was expected.
10-yr periods ending around dot.com bubble, the GFC, the 2020 Pandemic were difficult too. So, that is the lesson - bad stuff happens, and occasionally.
From the spreadsheet (it uses S&P 500 TR for years 1957 et seq.): 12/1964 investment: $2661.02 12/1974 value: $3023.54
Nominal ten year cumulative return: positive 13.62%. Showing once again that memories and speculation are no match for cold, hard numbers
The spreadsheet (if you download the xls version) has several sheets containing explanations, raw data, etc. Very helpful in understanding the figures.
Divs between 1965 and 1973 inclusive tended to run a shade over 3%, and 1974 divs were 5.43%. That seems about right to account for a 32.72% swing in returns between price only and total return.
Still, losing 32% in real dollars (calculated from spreadsheet) including reinvested divs is painful.
>> Merely showing that ... a typical balanced fund outperformed the market is not sufficient to show that the bond sleeve helped.
Could you elaborate on this a bit? Not seeing how it could not; sorry. Or is it that specific stockpicking did it, bonds quite aside, a la BRUFX and (once upon a time) GLRBX?
There are periods when actively managed funds beat "the market" (aka S&P 500 in this thread). For example, in the 11 years from 1999 through 2009 S&P 500 index funds beat actively managed LC blend funds only once.
Given a period when stock funds are beating "the market", what can one say about bond sleeves of balanced funds? Certainly if the balanced funds are not beating "the market", then bonds must be pulling down performance. But if typical balanced funds are still beating "the market", you don't know if the bonds are helping performance, or if they are hurting performance but not by so much that the funds don't underperform "the market".
To make that determination, you could compare typical balanced funds with typical stock funds.
As to why "everyone" is beating the market at some time, that could be individual security selection as you suggested, or it could be a general tendency to invest slightly differently from the market (e.g. somewhat more growthy stocks or smaller caps, or in bonds perhaps somewhat lower credit quality). Whatever.
I think, also, you have to decide if you are talking about reinvesting dividends. People who plan to live on their investments may need to spend them, especially if the absolute value has dropped significantly
After 1929 and more relevant to us, after 2000, the market did indeed return to it's previous high in 2007 only to crash again. IT was not until 2013 that it finally hit a new high and stayed there
You need a strategy that allows you to avoid selling during these dips to pay your bills. Taking withdrawals out of equities when the market is within 5% of it's high and using cash when it is not is one that is pretty simple, but it depends on having enough cash to ride out long periods of underperformance
Comments
Look at how your favorite MA/hybrid did 1/1/1965-12/31/1974 ( VWELX, FPURX, DODBX ).
https://i.ibb.co/XJhn6c4/Screenshot-2024-01-15-06-36-57.png
Also, it's easy enough to link to sources if one is so inclined. Since you like the St. Louis Fed, here's its inflation data in tabular and graphic forms.
to summer '82 ... the end period was a time of 15% inflation
You questioned my selection of calendar year figures. What would you have preferred? Annual inflation as of the summer of '82? FPURX hit its 1982 peak on June 15th.
If my point were to be contrary, I'd quibble that this date wasn't in the summer. But my intent is to look at real data, not faded memories. So let's look at June 1982. Prices had risen over the past 12 months (not calendar year) by 7.1%. Less than half of 15%. (Source: BLS)
You wrote (pardon my paraphrasing) that you couldn't understand how investments such as FPURX could rise so much in nominal terms (1973-1984) while the market just broke even in real terms (Hulbert). By conceding that inflation was high at the "end period" of 1973-summer 1982, you implied that inflation was not so high at other times as to explain the apparent contradiction.
My response in part was to point out (with actual data) that your memory of inflation was fuzzy. Though inflation in the "end period" was not quite as high as you remembered, it was high throughout the 12 year span and in fact was virtually as high in 1974 as it was in 1980. That goes part of the way to explaining what you saw as a contradiction.
The rest of the explanation had to do with your selection of reference fund. There were multiple issues there. As I showed in the data below, FPURX well outperformed reputable, well known peers. Those peers, VWINX and VWELX still demonstrated your point (that balanced funds could outperform the market) while looking less like cherry picking. The fact that stock funds could perform as well as balanced funds suggests that it might not be stocks vs. bonds, but rather active vs. passive. As I noted, it was not that difficult for well researched and well connected active management to outperform. Merely showing that an outlier balanced fund (or a typical balanced fund) outperformed the market is not sufficient to show that the bond sleeve helped. Not when pure stock funds were achieving similar returns.
Bonds may not even have helped. It depends on which bonds and how they were used. In nominal terms, S&P 500 returned 148% over12 years, 1983-1984 and 10 year Treasuries just 110%, though Baa corporates returned 168%. Data again from NYU/Stern spreadsheet.
Indeed. Another venerable balanced fund, PGEOX, outperformed FPURX for 8.5 years starting 12/31/64, before falling behind in the last 1.5 years of that 10 year span.
Funds are not static, they evolve and adapt.
For example, in 2008, Puritan explicitly changed from "emphasizing above-average income-producing equity securities, which tends to lead to investments in stocks that have more 'value' characteristics than 'growth' characteristics" to a fund that "is not constrained by any particular investment style. At any given time, FMR may tend to buy 'growth' stocks or 'value' stocks, or a combination of both types."
Here are descriptions of how a couple of its peers changed over decades: https://pictureperfectportfolios.com/what-are-the-oldest-mutual-funds-historic-investments-revealed/
Whether these and other fund changes have handled markets in good times and bad I leave for others to decide. The point here (since someone keeps asking me what the point is) is that these may not be your father's (or your grandfather's) funds. It's fun to see how they did half a century ago, but is it meaningful?
In the charts above, I tried to add SP500 but couldn't. I looked up SP500 index data:
12/1964 84.75
12/1974 68.56
That was -19.10% index return during that 10-yr period. I couldn't find reinvested SP500 TR for that period - I think that it still would be negative. In that time, VWELX was just flat, but DODBX and FPURX were positive. Did the people investing in 1965 know this? If not, what would have been a prudent course, especially if decumulation in retirement was expected.
10-yr periods ending around dot.com bubble, the GFC, the 2020 Pandemic were difficult too. So, that is the lesson - bad stuff happens, and occasionally.
NYU/Stern spreadsheet:
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
https://www.stern.nyu.edu/~adamodar/pc/datasets/histretSP.xls
From the spreadsheet (it uses S&P 500 TR for years 1957 et seq.):
12/1964 investment: $2661.02
12/1974 value: $3023.54
Nominal ten year cumulative return: positive 13.62%.
Showing once again that memories and speculation are no match for cold, hard numbers
The spreadsheet (if you download the xls version) has several sheets containing explanations, raw data, etc. Very helpful in understanding the figures.
Divs between 1965 and 1973 inclusive tended to run a shade over 3%, and 1974 divs were 5.43%. That seems about right to account for a 32.72% swing in returns between price only and total return.
Still, losing 32% in real dollars (calculated from spreadsheet) including reinvested divs is painful.
Could you elaborate on this a bit? Not seeing how it could not; sorry. Or is it that specific stockpicking did it, bonds quite aside, a la BRUFX and (once upon a time) GLRBX?
Given a period when stock funds are beating "the market", what can one say about bond sleeves of balanced funds? Certainly if the balanced funds are not beating "the market", then bonds must be pulling down performance. But if typical balanced funds are still beating "the market", you don't know if the bonds are helping performance, or if they are hurting performance but not by so much that the funds don't underperform "the market".
To make that determination, you could compare typical balanced funds with typical stock funds.
As to why "everyone" is beating the market at some time, that could be individual security selection as you suggested, or it could be a general tendency to invest slightly differently from the market (e.g. somewhat more growthy stocks or smaller caps, or in bonds perhaps somewhat lower credit quality). Whatever.
After 1929 and more relevant to us, after 2000, the market did indeed return to it's previous high in 2007 only to crash again. IT was not until 2013 that it finally hit a new high and stayed there
You need a strategy that allows you to avoid selling during these dips to pay your bills. Taking withdrawals out of equities when the market is within 5% of it's high and using cash when it is not is one that is pretty simple, but it depends on having enough cash to ride out long periods of underperformance
True for any portfolio combination of whatever and whatever.