Performances of Portfolios - part 2

It may prove useful to read Part One here:

To just recap, the performances of the first part of this series for the time period 1956 to 1984 are as follows:

Staggered across are the individual performances in their time periods.
The best absolute returns performances per year for their periods are:
Rick Guerin 1965 to 1983: 32.9%
Warren Buffett 1957 to 1969: 29.5%

Once again, as we go into this second part, we remind ourselves: we would like to look at some reported performances of professionals for our learning.
However, it is also crucial to learn about the historical context of these returns.

Performance of the Dow

Before we begin looking at other performances, it is perhaps good to have a benchmark which can capture some of these historical context of the performance gains achieved by the professionals.

For this purpose, we use the Dow Jones Industrial Average.

The Dow Jones Industrial Average /ˌdaʊ ˈdʒoʊnz/, also called DJIA, the Industrial Average, the Dow Jones, the Dow Jones Industrial, ^DJI, the Dow 30 or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. The industrial average was first calculated on May 26, 1896.[2] Currently owned by S&P Dow Jones Indices, which is majority owned by S&P Global, it is the most notable of the Dow Averages, of which the first (non-industrial) was originally published on February 16, 1885. The averages are named after Dow and one of his business associates, statistician Edward Jones. It is an index that shows how 30 large publicly owned companies based in the United States have traded during a standard trading session in the stock market.[3] It is the second-oldest U.S. market index after the Dow Jones Transportation Average, which was also created by Dow.

The Industrial portion of the name is largely historical, as many of the modern 30 components have little or nothing to do with traditional heavy industry. The average is price-weighted, and to compensate for the effects of stock splits and other adjustments, it is currently a scaled average. The value of the Dow is not the actual average of the prices of its component stocks, but rather the sum of the component prices divided by a divisor, which changes whenever one of the component stocks has a stock split or stock dividend, so as to generate a consistent value for the index. Since the divisor is currently less than one, the value of the index is larger than the sum of the component prices. Although the Dow is compiled to gauge the performance of the industrial sector within the American economy, the index's performance continues to be influenced by not only corporate and economic reports, but also by domestic and foreign political events such as war and terrorism, as well as by natural disasters that could potentially lead to economic harm.

so let's take a look at the Dow.
Log Scale - til now

Log scale is used instead of linear scale because:

Putting 1957 to 1983 into perspective

Log Scale - 1957 to 1983

For this period of 1957 to 1983, there's been only slightly more than a doubling of returns over a 16 years timeframe!

It is important to bear this mind before we move onto the next time period, because though by comparison, it appears these professionals are not doing that fantastic, most of them are essentially tripling the gains of the index!

as cited above.

Disclaimer: This post is meant for informational and recreational purpose only, not meant to induce buying, selling or quarreling. If you find yourself in a highly excited state, a few deep breaths and a cold shower is highly recommended. Reader should dyodd and all advice, given of implied, can be only taken at reader's own discretion and risk.

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6 likes 2 comments

this series is turning out to be a little more tedious to write than originally expected.


Reply to @wellhandy : nice work bro. thanks for sharing

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