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This One Stock Chart Could Make or Break You Over the Next 20 Years

stock chartMy investment plan is pretty simple – invest in retirement and non-retirement stock and bond mutual funds and sprinkle in a little real estate investing along the way. I invest for the long-term and don’t pull money out of the market at the first sign of a downtrend. Instead, I continue to invest monthly during a downturn to pick up more shares of stock at lower prices.

Because this is my philosophy, I don’t pay attention to the day-to-day fluctuations of the market. I quit listening to CNBC and other financial news programs years ago. While some of the programming was tolerable, they are news organizations, interested in ratings and what’s happening with the markets in the short-term.

The majority of the opinions I heard on any given day about the state of the markets and what I should be doing accordingly, didn’t jive with my long-term investment strategy.

One aspect of investing that has always intrigued me though is the stock chart. When these pop up on the news channels or I see one online (like I did yesterday) I often take notice.

Short-Term Stock Chart

All stocks and markets have a stock chart that tracks their historical performance. An investor can learn a great deal about the health of the market by doing some basic technical analysis. Almost all investment companies and brokerages like Glanmore Investments have software and tools to help you with technical analysis and trading. And I love history in general, so I think that’s why I’m attracted to stock charts.

Analysts can use a stock chart to see trends and predict the future. Of course, we know those predictions are only a guess, having heard this investing caveat all too often – “Past performance is not an indicator of future results.” There are simply too many unknown future events that could disrupt the market’s flow, causing investment philosophies and stock direction to change.

But we don’t know what or when those events are going to occur so we might as well invest. If we don’t invest, then we will miss what happened in 2013.

Check out this stock chart of the S&P 500 for that time period:

S&P_500_1-Yr.

You can see from this stock chart the market had a great year, with the S&P moving roughly from 1400-1800 from December, 2012 to December, 2013. It still seems to be running pretty healthy. The purple line you see labeled “150-Day Moving Avg.” is a trend line of the market’s average closing price over the last 150 days (at any given point along the line).

You will notice three times this past year (at the green circles) the market began to trend down and almost crossed the 150-day moving average. On each occasion stock prices bounced off the line and positive, upward price action ensued. Deterioration of the market below that moving average could indicate a potential further breakdown of stock prices. So, you can see that it’s a positive when that technical indicator is moving up and to the right and the market stays above it.

Long-Term Stock Chart

The one-year is a cool stock chart but I can pretty much discount it as it relates to my investment philosophy. It’s just one year in the life of many I have to invest. This next one is the stock chart that got me fired up to write this and bounce the post I had planned for today.

Check out this 70-yr. chart of the S&P 500:

S&P_500_70-yr.

You can see in the past 70 years, we’ve had essentially two 20-year bull market runs in stocks which were each followed by a 13-year consolidation period of sideways trading action. I find it fascinating that the trading action in those two 13-year ranges so closely resembles one another (in relation to number of peaks and dips in each). But what has me even more hopeful is what I see happening in the upper right hand corner of the chart.

You will notice the tracking line has broken through and above the blue 13-yr trading range.

So what does that mean for stocks going forward?

It could mean absolutely nothing in relation to price direction.

Or it could mean, based on a historical pattern, we are in for a very strong move in stocks over the next 10-20 years. I’d take a 1300+% return from now until 2034, wouldn’t you?

The Takeaway

I really have no clue what happens next in the markets, as does no one else. So I will keep plodding along with my long-term investment philosophy, investing a little more money each month whether the market is going up or down. With sound discipline that helps me avoid investing mistakes and the right market action, those investments will hopefully turn into a tidy sum of money over the next 20 years.

If anything, this 70-yr. stock chart validates the value of a long-term investing strategy. The younger you are, the more you should take notice of that or you might regret it in the long run. Are you listening teenagers and 20-somethings?

Questions: Is your investment philosophy more short or long-term focused? Will you continue to invest when the next market downturn occurs? Do you put any value in a stock chart?

Charts ironically courtesy of CNBC. Thank you! Click here to see the entire interview discussing these charts. Wall Street image at FreeDigitalPhotos.net

Next Post: My January Fuss-a-thon at Business Owners Have Begun

Prior Post: The Attitudes of a Successful Landlord

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Comments

  1. I don’t know about you but… I’m all for another 20 year bull run!

  2. Trying to time the market is a fools errand. I’ve tried it and lost a ton of money. Your approach of slow and steady dollar cost averaging over time is the way to go for 99% of the folks. Thanks for spreading the word on a KISS approach to investing!

  3. MoneySmartGuides says:

    So interesting to see! And love your honesty – could mean something, but could mean nothing at all! Many people take this to mean so many different things.

    • Right…I do get excited by the potential of what could happen. But my knowledge and experience draw me back and make me realize I can’t predict the future so why worry about it or try to anticipate what is going to happen. My plan is pretty steady and has served me well thus far.

  4. Kim@Eyesonthedollar says:

    If that trend repeats, that would be wonderful, because this next decade is going to be max out central at our house. We are certainly in for the long term and will continue to follow our plan regardless of whether things are up or down.

  5. John S @ Frugal Rules says:

    Good post Brian! I know just a bit about technical analysis – enough to make me dangerous but I find that I just don’t have the time to devote much of anything to it. That said, my focus is completely on the long term and believe that is generally the approach most should take. I have a very small part of our portfolio that is focused on short term growth, but that’s only because I enjoy it and allows me to feed my inner geek. 😉

    • Thanks John! That analysis on the moving average is pretty much the depth of my knowledge on the subject. I don’t trade single stocks and focus on short-term trends, so much of the technical analysis that covers those areas is useless to me.

  6. Done by Forty says:

    So I should move to 100% stocks, right?

    Just kidding. I, luckily, know so little about technical analysis that I’m fairly harmless to myself and others. 🙂 Though I love the possibility of a huge rally over the next 20 years. Maybe just a quick, 2-3 year dip so I can buy some stuff on sale though?

    • Haha…I like dips to but I don’t wait for them to buy. I just hit them when they happen because I’m consistently investing month after month. If that chart does hold true, in 20 years today’s prices will look like a sale.

  7. Oh man, technical trading just makes me laugh. I do like the final conclusion though that long-term investing is alive and well. No matter how many people try to declare it dead.

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