Dow Jones Industrial Average from 1921 to 2011

In 1921 Dow Jones Industrial Average (DJIA) was 64, today it is 12,200. The question is how could you lose money in this period and the fact is that many people did.

In these ninety years between 1921 and 2011 we had the Great Depression from 1929, Pearl Harbor, Second World War, Korean War, Cuban Missile Crisis, the Cold War, the Vietnam War, Oil Crisis, Stock Market Crash of 1987 or Black Monday as we know it, Gulf war and invasion of Kuwait, wars in Yugoslavia, September 11th 2001, War on Terrorism, war in Afghanistan and Iraq, and the Financial Crisis of 2008. A lot of events and many more I didn't mention that worked against the markets and the trend was still upward and by what margin, an increase of 18,900% in 90 years or 6% compounded annually + dividends.

The lowest point was 41 in 1933 and the highest point was 14,164 in October 2007, so from 1933 to October 2007 Dow increased by 34,300% in 74 years or 8.21% compounded annually. So we have navigated between fear and greed, fear in 1933 and greed in 2007.

Post 2008 lowest point of DJIA was in March 2009 and it was 6,547. That is a decline of almost 54% in less than 17 months. Again in October 2007 people were navigating by greed and in March 2009 by fear. I cannot predict markets and nobody can, I cannot tell you how the market will open tomorrow as many couldn't tell you how the markets would open the next day on September 10th 2001. However, we can be sure of one thing. In the next 10 years we will see the markets decline by 25 - 35% or even more, this will be again a very good opportunity for value investors who are looking for bargains. Since March 2009 DJIA hit a new post-crisis high of 12,391 in February 2011 - that is an increase of 88% in 23 months.

I know one thing, you will not make money by dancing in and out of the markets, this is how many people before you have done it and they have lost money between 1921 - 2011 when Dow advanced 18.900%. You have to find an opportunity when to buy, like March 2009, and hold it for as long as you can, and you will do more than fine over a long period of time.

Sell when the market is dominated by greed (October 2007) and buy when market is dominated by fear (March 2009) and think long term, only long term.

Happy investing!

Damian Kosutic