Xmas eve 1999 FTSE 100 6806

[ADrunkenMarcus]

I would like to know though where it might be in a tear's time

Is that a Freudian slip?!

For myself, I'd love the market to be substantially lower in a year's time as I'd be able to bargain hunt.

Best wishes

Mark.

[OhNoNotimAgain]

I fully understand that dividends have been payable on some shares in that time and if reinvested would have helped the situation. And of course some of those dividends have been at reasonably high rates. I also understand that some of those high yield have completely disappeared off the map.

Your chart looks at a 4.1% annual return over the last 25 years, excluding dividends...my simple maths shows a negative return in the last 18 years...so those reinvested dividends would have done what to that return?

You are quite correct to point out the returns have been dismal. If you're not going to get any growth for 20 years then why be in equities at all? You might as well have bought bonds.

The depressingly predictable response was "but what about the dividends?". But it's entirely possible to argue that it is precisely this peculiar obsession that UK investors have with dividends which is the cause of the abject capital performance. If investors demand high dividends then companies will disgorge themselves to pay them, to the point of paying out more than they earn, or even borrowing to maintain a dividend. And what Ohno will never admit is that dividend cover is abysmal at the moment with huge dividend payers like Glaxo and Royal Dutch barely managing to maintain their dividend and going ex-growth.

As an alternative take a look at the S&P 500. It too peaked around the same time 20 years ago. But it is now at a capital level of twice its value then. And its dividend payouts have increased at a higher rate, whilst dividend cover remains significantly higher than the UK. UK investors would have been much better off buying a US index fund than a UK index fund for the last 20 years. Here is a chart of an investable version of the S&P 500 over the last 20 years:

https://finance.yahoo.com/chart/SPY#eyJ ... 1dfQ%3D%3D

The UK market has gone ex-growth because UK investors over-rate dividends. You only have to look at the UK TMF articles to see that obsession with dividends and yield. The US TMF is not like that at all. Its focus is on growth, opportunity and managing risk - things you never hear from our resident yield hogs.

There are elements of truth in some of that. However, the US market has been supported by share buybacks, much of it debt funded, which has shrunk the equity base and pushed prices higher. Although cases like GE demonstrate the perils of that process.

[GoSeigen]

https://www.ft.com/content/9a323490-f202-11e1-bba3-00144feabdc0

But you can find more on any financial website.

So your argument is that because a Mr Ralphe said it it must be correct? And additionally we should ignore the views of the other analysts consulted in the writing of the article who said "many factors are affecting equities prices beyond QE and quantifying its effects can be difficult."?


I don't obtain my opinions from financial websites: I develop them from my own judgement of the evidence, an example of which I gave in my last post. I consider the approach of taking on board a selection of things spoken about in the media as truth to be profoundly unsound.

I bet MunroMan's views are similarly founded!

Anyhow, and anyway you cut it, the last 18 years even including dividends, when adjusted for inflation is appalling. Luckily only the mad few were invested in the FTSE100. Hopefully most had a smattering of the All Share, FTSE250 and Small Caps - all of which did somewhat better. Oh, and HYP 1 of course!!!!!

This contradicts your thesis, because as your article states, the last 18 years have included "unprecedented" QE in most of the developed economy which you and MunroMan maintain would have hugely distorted the market and made it grow disproportionately.

Personally I look to the other factors alluded to by the analysts above; foremost the high valuations given to stocks in 1999/2000 by the market itself contrary to the warnings of the central banks (recall "irrational exuberance"...) and the correspondingly low valuations of 2008/9 for my barometer of share price movements.


GS

[GoSeigen]

If investors demand high dividends then companies will disgorge themselves to pay them, to the point of paying out more than they earn, or even borrowing to maintain a dividend.

Sad but true. And shortsighted.

I also agree here and have long compared these stocks to a bond which has a large coupon and consequently trades over par -- the capital falls are baked in from the outset.


GS

[OhNoNotimAgain]

By my estimation QE in the uk has made a marginal difference if any difference at all. Why? Because the BoE is a tiny player tinkering around the edges. They swapped a few hundred billion pounds of gilt-edged securities paying 0-2% fixed interest for other assets offering 0.5% variable. That's it. Perhaps 1.5% of half a trillion which is a one-off £7.5bn of actual stimulus in an economy generating £2tr of GDP every year. I'd like to know how that has any material effect whatsoever on asset prices.

GS

I think anyone who has traded in illiquid markets is well aware of the dramatic effect that small changes in liquidity can have on capital values.

[OhNoNotimAgain]

I don't obtain my opinions from financial websites: I develop them from my own judgement of the evidence, an example of which I gave in my last post. I consider the approach of taking on board a selection of things spoken about in the media as truth to be profoundly unsound.


GS

I prefer hard historical data, but I have no preference as to what media it is presented on. These days they are interchangeable.