A Wealth of Common Sense. Posted March 19, by Ben Carlson. Specifically, Dalio made reference to the scenario where the Fed acted prematurely in the aftermath of the Great Depression which sent the economy and stock market into a free fall.
The Investing Lesson of Hold Some Cash - WSJ
Here are the stock and bond returns for along with the entire 10 year period from the start of that year:. These large gains and losses led to just a 3. Over this ten year period, the 10 year treasury yield went from 2.
I think most investors these days would have a difficult time comprehending a year that sees both stocks and bonds in negative territory, which is exactly what happened in Hearing one of the most well-known investors in the world lay out this type of scenario as a possibility worried many investors when they read the headlines.
Some people thought Dalio was predicting another , but I doubt many of the headline readers or writers bothered to read his entire piece. If they did, they would have read this:. But human nature remains and there is always the possibility of an investor panic, especially following such a steep rise in risk assets in such a short period of time.
Many investors misunderstand or misuse historical scenario analysis. There are far too many moving parts in markets that are constantly adapting and becoming more intelligent. But historical scenarios can be used to assess and define potential risks in the market or your current investment positioning.
Tightening at the End of a Supercycle? Follow me on Twitter: Earlier indices contained fewer stocks and were more concentrated in a smaller number of industries. Limited computing power meant that index performance data was only available monthly in arrears until the early s. If they raised rates in it may have been a disaster.
Seems they learned and instead used the stimulus packages that many protested, for probably only political reasons.
Definitely was the right thing to do. I suspect gradual raising of interest rates will not hurt the market once the uninformed public gets past the emotion and erroneous noise from the financial talk shows and media. There was actually a fairly strong recovery in the mids from the Great Depression and the Fed raising rates along with a host of other things Dalio describes in his note threw the economy back into a recession.
But there are a number of differences between then and now in terms of fiscal policy. What Does the Bursting of a Bond Bubble Look Like? A Wealth of Common Sense is a blog that focuses on wealth management, investments, financial markets and investor psychology.
Stock market looks like crash of - Business Insider
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Equity Clock » Chart of the Day: Stock Market Comparison – vs.
Another win for diversification. Limited computing power meant that index performance data was only available monthly in arrears until the early s For a timeline of the evolution of market capitalization indexing see my blog: Ben commented on Mar 21 There was actually a fairly strong recovery in the mids from the Great Depression and the Fed raising rates along with a host of other things Dalio describes in his note threw the economy back into a recession. Dash of Insight Weighing the Week Ahead: The Quest for New Worries commented on Mar 23 […] It might raise rates too quickly.
Stock Market Losses With Low Interest Rates - A Wealth of Common SenseA Wealth of Common Sense commented on Apr 14 […] Further Reading: What If Everything Is Overvalued? More from my site Ray Dalio Explains Your Debt Cycle You Should Listen to the Smart People, Right? The Future of the Hedge Fund Industry. Get Some Common Sense Sign up for my newsletter Email: Get a Full Investor Curriculum: Join The Book List Every month you'll receive book suggestions--chosen by hand from more than 1, books.
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