10%

Is 10% return can be obtainable?

TABLES 71-76

"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - BEN GRAHAM

IS 10% ANNUAL RATE OF RETURN AN ACHIEVABLE GOAL IN A STOCK MARKET INVESTMENT?

BRIEF DISCUSSION ON INVESTING IN THE STOCK MARKET
Tables 71-76

"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks."- Benjamin Graham

Is a 10% Annual Rate of Return an achievable goal in a stock market investment?

BRIEF DISCUSSION ON INVESTING IN THE STOCK MARKET

Those who are a proponent of the stock market say that the stock market provides the highest rate of return of all investments, considering all factors.
Those who are a proponent of real estate investment say that real estate provides the highest rate of return on all investments considering all factors, and more millionaires are created by real estate investment.

You should consider investing in both and thus diversify ("don't put all your eggs in one basket").
Following is some history and basic facts about the stock market to understand the investment process:

STOCK MARKET

HISTORY

MARKET TRENDS

BULL MARKET

BEAR MARKET

HISTORY
Most likely temples and holy places first had played the role of bank, money lenders and changers (a).
"In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers." (b)courratiers de change ? meant courtier de change = Exchange trader

First the city of Bruges (Country of Flanders = "a geographical region located in parts of present-day Belgium, France, and Netherlands. Reference. Flanders. http://en.wikipedia.org/wiki/Flanders), followed by Antwerp and Amsterdam were the primary trading place for most of the merchants in 13th century (c).
Mid 13th century, Venetian bankers, followed by Pisa, Verona, Genoa, and Florence, began trading in government securities.
The Amsterdam Stock Exchange, later named Amsterdam Bourse, was established in 1602 by the Dutch East India Company (Verenigde Oostindische Compagnie, or "VOC") and issued stocks and bonds. It is considered the world's first stock exchange (a, c, d).
Reference:
a) Earliest banks. http://en.wikipedia.org/wiki/History_of_banking
b) Stock exchange:
http://en.wikipedia.org/wiki/Stock_exchange
c) Stock market. http://en.wikipedia.org/wiki/Stock_market
d) Amsterdam Stock Exchange. http://en.wikipedia.org/wiki/Amsterdam_Stock_Exchange

History of US Market.
" Historically, the colonial government decided to finance the war by selling bonds and government notes, promising to pay out at profit at a later date. Around the same time private banks began to raise money by issuing stocks, or shares of the company, to raise their own money."
Origin of New York Stock Exchange (NYSE):
In 1792, 24 merchants met to trade stocks and bonds on a street market in New York City. This ultimately lead to the creation of the New York Stock Exchange(NYSE).
In 1921, street market trading moved indoors.
Reference:
Stock Market History:http://www.stockmarketinvestinginfo.com/smi_history.html

MARKET TRENDS

BULL MARKET

BEAR MARKET

MARKET TRENDS

Trend means moving direction of the stock market or any investment vehicle.

Trends can be:

Primary trends

Secondary trends (short-term)

Secular trends (long-term)

Sideways (horizontal) trend

Primary trend:

General movement in price data that lasts 4 to 4 1/2 years.
http://www.thecfdcentre.com/glossary/tradefloor_terminology/primary_trend

Secondary trend:
A temporary change in price within a primary trend usually lasting a few weeks to a few months.

Secular Trend:
A long indefinite time period lasting 10 to 20 years or longer either Bull or Bear.
http://en.mimi.hu/stockmarket/secular_trend.html.

Sideways (horizontal) trend:

A period of consolidation indicating nearly equal supply and demand with price traveling between support and resistance ranges before breaking out of range to make a new trend, up or down.
http://www.investopedia.com/terms/s/sidewaystrend.asp

BULL & BEAR MARKET

"The use of "bull" and "bear" to describe markets comes from the way the animals attack their opponents. A bull thrusts its horns up into the air while a bear swipes its paws down. These actions are metaphors for the movement of a market. If the trend is up, it's a bull market. If the trend is down, it's a bear market." Usually, Dow Jones and S & P 500 indices are used to determine the market bull and bear trends.
http://www.investopedia.com/terms/b/bullmarket.asp

Bull market:

Stocks prices are rising and expected to continue to rise. Established bull market is when % of rise greater is than 20% in Dow Jones and S & P 500 indices.

http://www.investopedia.com/terms/b/bullmarket.asp
Market Corrections Are Not Unusual. http://seekingalpha.com/article/207582-market-corrections-are-not-unusual?source=email

Correction:

A temporary decrease during a bull market, where the decline is greater than 10% and less than 20% in Dow jones and S & P 500 indices. http://en.wikipedia.org/wiki/Bear_market

Market Corrections Are Not Unusual.http://seekingalpha.com/article/207582-market-corrections-are-not-unusual?source=email

Bear market:
Stocks prices are falling and expected to continue to fall. By definition a bear market starts after a 20% or more decline Market corrections are ones where the decline is greater than 10%, but does not exceed 20% in Dow Jones and S & P 500 indices. http://www.investorwords.com/443/bear_market.html
http://www.investopedia.com/terms/b/bearmarket.asp.
^{http://en.wikipedia.org/wiki/Bear_market}

Bear market rally:

A temporary increase during a bear market. Example of this is the rise of the stock market between 2002 and 2007 inside a secular bear market that started in 2000 as in the SPY graph below. You can see other such examples in the secular Japanese bear market that started in 1989 and is still on in 2010, with 4/5 bear market rallies as well during this period.
http://en.wikipedia.org/wiki/Bear_market

Causes of Bear market:

a) Economy in recession

b) High unemployment

c) Rising inflation

d) Any combination of a, b & c.

http://www.investorwords.com/443/bear_market.html

Average duration of bear market ranges from a few months (3-4) to about 2 years.
The longest bear market was from 1965 to 1982 (17 years cycle*) in the USA.

The most famous bear market:

The stock market crash started in 1929 and lasted from 1930 to 1932. The great depression started after this.
Recent Bear markets: 1973 to 1982 and 2000 and continued with a rally between 2002-2007.
http://en.wikipedia.org/wiki/Bear_market#Bear_market)/
2002

Presently, the market has been in a long term (secular) bear market from 2000 and is continuing (2010).
Historically, this secular bear market is likely to last from 16 to 21 years or 2016 to 2021 (please see the Table below 71 A).

Secular (long term) Bull and Bear markets:

Following is an analysis of the Secular Bear Markets and Secular Bull Markets since 1900.
Since 1900, three Secular Bull Markets and three Secular Bear Markets have been noted. The last secular bear market started 2000. These are shown in the Table 71A below:

Table 71 A

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References:1. An Analysis of Secular Bear Markets and Secular Bull Markets since 1900.
http://www.amateur-investor.net/Secular_Bear_Markets_vs_Secular%20Bull_Markets.htm
2. The S&P 500 at Your Fingertips http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html
* S & P 500 index calculation is taken entirely from this site. These calculations are slightly different than as documented in reference 1.
3. Dow Jones Industrial Average (DJIA) Yearly Returns
http://www.1stock1.com/1stock1_139.htm

Table 71B is an analysis of Table 71 A.

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X

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Table 71 B is part of Table 71 A. If you try to analyze this table, it shows that the Dow Jones average has not fallen enough between 2000 to 2008 (in the midst of secular bear market), to catch up with the previous three secular bear markets. On the other hand, during the same period the S & P 500 index has fallen too much to compare to the previous three bear markets.

Bull Markets can arise lasting few years inside the secular Bear market. Presently, the market is in a long term (secular) bear market from 2000 and now. This could last up to 16 to 21 years. Inside this secular bear market, a bull market developed between 2003 and 2007, back to bear market again till March, 2009 and has been rallying (bull) since then.

Part 2

1/2 hour

Nikkei 225

It is the stock market index for the Tokyo Stock Exchange (TSE).
Since September 7, 1950 and retroactive calculation from May 16, 1949, TSE is recorded. In Graph 1.
Rose, please ignore the empty graph.

Graph 1
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From: taipan@taipanpublishinggroup.com
To: dilray@hotmail.com
Subject: Taipan Daily: Why America Won't Look Like Japan
Date: Wed, 3 Dec 2008 07:00:00 -0500

The above graph shows that Nikkei reached an all time high of 38,915.87 on December 29, 1989.

NIKKEI 225 (^N225) Technical Analysis from Yahoo Finance: Graph below is showing the graph just prior to 1985.

http://finance.yahoo.com/q/ta?s=%5EN225&t=my&l=on&z=m&q=l&p=m200,m50&a=&c=

Chart for NIKKEI 225 (^N225)

NIKKEI 225 (OSA) Technical Analysis from Yahoo Finance: the Graph below is showing the graph since March, 2009.

http://finance.yahoo.com/q/ta?s=%5EN225&t=1y&l=on&z=m&q=l&p=m200,m50&a=&c=

It fell to a 20-year low, about 7,600, in March 2003; since then it reached it’s highest, about 18,300, in July, 2007.

Since 2007 Nikkei dropped again along with rest of the world markets and ranged between 7,021.28 on March 10, 2009 to 10,905.39 on January 12, 2010 and today, March 6, 2010, closed at 10,368.96
It seems that the secular bear market of Japan will surpass the longest 21 years bear market recorded in the USA that was between 1929 and 1949 (1, 2).
Reference:
1. Tokyo Stock Market Hits Lowest Point Since 1983 By Kenji Hall
http://www.sptimes.ru/index.php?action_id=100&story_id=9547
2. NIKKEI 225 (^N225).http://finance.yahoo.com/q/ta?s=%5EN225

CONCLUSION:
1.For even more than two decades, the Japanese market has not recovered and unlikely will do so in next decade.
In the meantime, many other countries’ stock markets have done very well. The lesson here is to diversify investments in many different countries' stock market.
Investment in the S&P 500 Index Fund in the USA fulfills this to some extent, that is, investing in different countries. This is to some extent like investing in many foreign countries' stock. Many large US companies that belong to the S & P 500 Index Fund do extensive business in most parts of the world with a great deal of earnings coming from foreign sources.
During the same period (December, 1989 to December, 2008), the Japanese market is still staying at about 8000 (12/2008). From about 39,000 (1989), the S&P 500 index had a yearly average return of about 4.98% and with all the dividends reinvested, the return was about 7.19%, in spite of the S & P 500 index losing about 40% from its peak between 2007 and 2008.
Reference: Political Calculations. The S&P 500 at Your Fingertips
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html

2. None can time the market.
"I would repeat what I learned in your Morningstar Course 106: "We're not keen on market-timing. It just doesn't work." Every reliable study I've seen arrives at this same conclusion. Mr. Bogle wrote in his great book, Common Sense on Mutual Funds: "After nearly fifty years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently."
Reference: What the Bogleheads Know for Sure. MORNINGSTAR.By Christine Benz , On Wednesday March 3, 2010. http://finance.yahoo.com/news/What-the-Bogleheads-Know-for-ms-1453234133.html?x=0
Over a long period S & P 500 index stocks have gained (over 9%, see Tables 66, 68 need correction) more often than they lost.
If you ignore the market trend completely and keep investing for a long time, such as 65 years or so, historically, you will do very well. The long period will ride the market’s ups and downs and gain significantly, if you use the power of compounding, reinvesting all dividends and keep adding new principal, such as "dollar cost averaging" ( please see page.. )

Will the US market will behave the same way as the present Japanese market has been behaving for almost the last two decades?

“Investors’ great fear is that America could wind up looking like Japan. But in part because that fear is so strong, the U.S. will head down a different road.

FOUR MISTAKES THE JAPANESE HAVE MADE:

a) Propping up “zombie” companies that should have been allowed to fail.

b) Being forever guilty of “too little, too late” in regard to aggressive monetary policy.

c) Dropping the hammer too quickly whenever signs of inflation appeared.

d) Tolerating the Keiretsu system in which entrenched managements locked arms to block change.

Of the above four mistakes, the United States is most in danger of America’s entrepreneurial culture standing in sharp contrast to the old Japanese motto, “the nail that sticks up gets hammered.””

References:
1. Political Calculations. The S&P 500 at Your Fingertips
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html
2. Why America Won't Look Like Japan:
by Justice Litle, Editorial Director, Taipan Publishing Group Wednesday, December 3, 2008
“Why America Won't Look Like Japan“!!
Never in the history of world was so much money lost in one episode and in such a short period.

With trillions of money being printed and borrowed by the US government, except perhaps not to a such an extent by China and India, does anyone know what the future is?
Bearing the above facts in mind, you can proceed to the next very common question:

Is a 10% Rate of Return an achievable goal in stock market investment or just unrealistic for most investors?

"If over the past 10 or 20 years, you had simply held a portfolio consisting of one quarter each of indexes of large U.S. stocks, small U.S. stocks, foreign stocks, and high-quality U.S. bonds, you would have beaten over 90% of all professional money managers and with considerably less risk."

Reference:

What the Bogleheads Know for Sure. By Christine Benz, On Wednesday March 3, 2010

http://finance.yahoo.com/news/What-the-Bogleheads-Know-for-ms-1453234133.html?x=0

An average annual gain of 10% or more is an achievable goal and very realistic.
However, there is no guarrantee that you will achieve this following the author's suggestions. Under no circumstances is past performance ever a guarantee of a similar future or better result.
This book is only a guide. You should seek opinion(s) as well as guidance from financial advisers, preferably from more than one who has achieved this goal.
Vast majority of fund managers achieve far less than 10% rate of return for their investor clients (1,2).

"..the vast majority of mutual funds underperform the returns of the stock market (as represented by the S&P 500 index). Because of their excessive annual fees and poor execution, approximately 80% of mutual funds underperform the stock market's returns in a typical year."(1,2)
References:
1.The Performance of Mutual Funds By Bill Barker.http://www.fool.com/School/MutualFunds/Performance/Record.htm
2. The Truth Behind Mutual Fund Returns by Investopedia Staff, (Investopedia.com) http://www.investopedia.com/articles/02/013002.asp

"Since 1926, the stock market has an average rate of return of 11.3%. Investors have earned more or less depending on the type of investments and risks taken. It is very important to note that this return is before costs have been factored. Therefore, those investing in actively managed mutual funds may have a net return lower due to these costs and thus will earn significantly less than the market average."

Reference:
1. Stock market rate of return.
http://www.omniglot.com/info-articles/investment/stock_market_rate_of_return.html

An average annual 10% or more rate of return is an achievable goal and very realistic. However, there is no guarantee that you will achieve this following the author's suggestions. Under no circumstances is past performance a guarantee of similar future or better results.
This book is only a guide. You should seek opinion/s as well as guidance from financial advisers, preferably from more than one who have achieved this goal.