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I saw a chart the other day which was pretty awesome, I can't find it but you can imagine or draw it yourself.

It started in 1950 or 1952 [not important], and it was the S+P compounding at 10% [or 9.5% whatever] a year. So imagine this straight line from lower left to upper right.

There were only THREE times there was a big divergence from the line, can you guess what they were? I bet you can!

1974 -- way below the line.

2000 -- way above the line.

2009 -- way below the line.


That's it! It fits perfectly with Eugene Fama's 'Cheat a little' comment when it comes to indexing. On average, like every 2 decades or so since the 50s, the market goes really, really crazy.
1987 Crash isn't even a blip on the market trend line, again, as most of you probably know.

And I think we can all agree these 3 instances were not hard to see the valuation extremes in real-time. If you just bought profitable, growing firms in 2009 [as opposed to value traps like Sears] you did fantastic. No need to buy Amazon or Netflix or etc.


I always say my biggest miss then was probably Starbucks, which you could have bought under $3.25 [in 2008 and 2009] and now pays $1.44 a year in dividends alone. That would be an amazing return before noticing the stock is now $71.
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