Analysis:
Index Portfolio Performance During the Bush Administration to Date
On January 22, 2001, which was the first day of trading after George W. Bush became President of the United States, three major indices stood at the following levels:
Dow Jones Industrial Average: 10,578.24
Standard & Poor's 500: 1342.9
NASDAQ Composite: 2757.91
At the close of trading today, November 4, 2005, these same three averages stood at the following levels:
Dow Jones Industrial Average: 10,530.76
Standard & Poor's 500: 1220.14
NASDAQ Composite: 2169.43
If an investor were to have formed a portfolio based upon each of these three indices and managed each in terms of composition and balance to track the relevant index properly, the investor would have earned the following total returns on investment:
Dow Jones Industrial Average: —0.44%
Standard & Poor's 500: —9.14%
NASDAQ Composite: —21.34%
Expressing these returns on an annualized (that is, "percentage return per year compounded") basis, the results just presented are as follows:
Dow Jones Industrial Average: —0.09% per year
Standard & Poor's 500: —1.98% per year
NASDAQ Composite: —4.89% per year
The above are nominal (that is, "not corrected for inflation") results. Taking into account the erosion of purchasing power (that is, "the effect of inflation") on portfolio value over the holding period requires adjusting the current portfolio value to its equivalent value on January 22, 2001. Using Bureau of Labor Statistics Consumer Price Index data for the 58 months from Janaury 2001 through September 2005 and projecting the October 2005 contribution from the trend line of the preceding nine months (since the October figures have not yet been released by the BLS), the following real return on investment (that is, "annualized rate of return on investment adjusted for inflation") would have accrued to each portfolio:
Dow Jones Industrial Average: —2.81% per year
Standard & Poor's 500: —4.65% per year
NASDAQ Composite: —7.47% per year
In other words, an investor forming a portfolio tracking the Dow Jones Industrial Average from the beginning of the Bush Administration in January of 2001 would have suffered an annualized loss in real value of the portfolio of almost three percent; the investor forming a portfolio tracking the Standard & Poor's 500 over that period would have experienced an annualized loss in real value of the portfolio of more than four and a half percent; and the investor forming a portfolio tracking the NASDAQ Composite index over that period would have experienced an annualized loss in real value of the portfolio of about seven and a half percent.
From a well-balanced portfolio of the common stock of reasonably low-risk, very large public corporations to an equally well-balanced portfolio of the common stock of relatively riskier, small-cap public corporations, equity (that is, "stock") has offered negative returns in both nominal and real terms over the tenure of absolute Republican control of the Legislative and Executive Branches of the federal government. Because no reasonable analyst could argue that securities markets have a political bias, the figures presented above offer an objective assessment of the effect of the neo-conservative agenda on both the national economy and on investors relying upon the stewardship of the country's leaders in their responsible role of ensuring an environment conducive to capital appreciation. To the extent that individuals and households rely upon that capital accumulation for future income security, the Republican era that has marked the beginning of the 21st Century has been a failure.
The Dark Wraith does, however, recognize that neo-conservatives would encourage investors to applaud the negative returns Republican policies have fostered.
Published 11/04/2005 09:49:00 PM
<< 6 Comments Total
*Meow*, Dark Wraith.
Even us cats can see that the bush rule hasn't been too good for the stock investors. We guess the folks making the big money are the companies raking it in from the the war efforts.
We also think we can consider it lucky that the stocks haven't dropped more.
We know people think that all we (cats) are interested in is catnip, sleep, kitty litter, toys, birds, and mice, but that's not so. We also like to see what's happening in the world. We found your article to be good food for thought. Thanks for making it available.*Meow*
It's been fine for investors.
Its just as easy to make money shorting stock in a reliably poor economy, as it is to make money by going long in a reliably good economy.
Good evening, Anonymous.
No, it's not. Shorting stocks entails bearing risk that is different from the risk of going long. Speculating against a sub-martingale process constructs a fundamentally different risk profile and requires a strategic plan different from investing in accord with a process with positive trend bias.
Securities prices in a modern, First World economy have a positive trend bias: that is what's supposed to be reliable; and that's why "buy and hold" strategies are superior in most situations with regard to risk-adjusted portfolio returns. Only in retrospect can we say that there was some reliability to a negative trend bias. If it really were, a priori, reliable, may God help us.
This goes hand-in-hand with the concept of "reliability" in a deeper sense. The United States economy should not be "reliably" weak. To be able to assess the economy of the most powerful, the wealthiest, the most historically creative and dynamic nation on Earth as reliably weak is evidence of a structural, fundamental re-alignment of the substrate that propels its engine of vitality. The very notion that the economy would be "reliably weak" speaks to a permanent sea-change that ensures the ultimate devolution of this nation into some mere echo on the landscape of this young century.
I have no intention of yielding to the Communist Chinese thugocracy any more than I have intention to yield to the neo-conservative version of it right here in the U.S.
And I have no intention of having to go back through every blesséd financial model of portfolio control and management I ever learned and re-work everything to accommodate reliably negative securities price paths.
The Dark Wraith is w-a-a-a-y too old for that.
hello dark one.....
you don't suppose that the list of equities gaining value (or at least rising in price) would have any political info do you? some stocks are going up. i read that halliburton is a winner. also oil stocks. somebody's getting rich(er).
Good evening, Dread Pirate Roberts.
Very good question. Of course, in a down market, the winners have to be more than counterbalanced by the losers. The gains accruing to companies like Halliburton are at the expense of other companies not attached at the pork teat to this Administration.
What I should do is have a look at the composition of those in the winners' circle. I do know that even some companies well connected to the Bush Administration and the Republicans aren't doing all that great in terms of stock price. A great example of that is HCA, Inc., the company that's gotten Senator Frist in hot water.
Also, keep in mind that quite a few of the companies benefiting from neo-conservatism are private companies: gains those companies achieve aren't available to outside investors. Not only does that make their largesse off-limits to the Average Joe and Jane, it also makes their operations far less transparent financially and otherwise. I ran into an example of that awhile back because I was trying to investigate a company about which rumors were being whispered among conspiracy theorists. I honestly knew nothing about the firm, and when I went to get some financial information that would have helped me debunk what the conspiracy theorists were saying, I found out that the company was but one, private subsidiary of a whole, multinational matrix of private companies, most of which are incorporated in other countries (some in what could be described as "off-shore" deals). Really weird outfit, especially since I did find a cryptic little press release that seemed at least on the surface to indicate that there might be something to the conspiracy theorists' rumor. But as far as finding out much of anything, nope: private companies—especially those not domiciled in the U.S.—are in many ways black boxes.
Yes, the winners in this neo-conservative era are a-plenty, and those who invest in their stock can expect to garner some nice rewards. The problem is that constructing a portfolio only of select companies that are connected in one manner or another of the Doom Brigade in Washington leaves a portfolio to a greater or lesser extent improperly and inadequately balanced because of the lack of broad-based diversification of the investments in the portfolio. That's okay for huge investors; they have ways to overcome that kind of imbalance. But to average investors, the lack of proper diversification leaves the portfolio exposed to a kind of risk for which there can be no expected reward, and that's simply because the risk can be avoided.
One way or the other, Dread Pirate Roberts, you should feel a whole lot richer because Mr. Bush has been our President these past five glorious years.
Oh. That's right. You don't feel a whole lot richer.
That's okay. Neither do I.
The Dark Wraith firmly believes that misery loves company.
Since the early 1980's it seems to me it hasn't been unusual for the oil companies' stock market valuations to move in a contrarian fashion to the market as a whole, and while I haven't systematically analyzed this, it makes intuitive sense to me.
When oil has been very cheap we have often had good economic times, but naturally in those times the oil companies have taken it on the chin.
When oil prices are high, the rest of the economy takes it on the chin.
- oddjob
ps: This is not to say that really cheap oil will guarantee general economic prosperity, but I would think expensive oil makes that prosperity very difficult, or impossible, to achieve and makes its opposite far more likely.