Investing lessons from our past
Andex Charts provide a long-term context to the markets today. Investors would be wise to take history’s advice.
This is my favourite time of the year. It’s not the changing leaves and crisp, sunny days that capture me. No, it’s the annual release of Andex Charts, my No. 1 investing tool!
Before you mutter, “Get a life, lady,” read on.
First of all, the story of Andex Charts is the stuff of “Dragons’ Den” success. Two guys in Windsor, Ont., Andrew and Dexter, dreamed up some marvellous financial histories and documented them in easily understood graphs and statistics. The results are poster-sized charts, covering a huge array of topics, illustrating what was happening in the world financially at various points in history.
Morningstar purchased the company in 2009 and, happily, has improved what was already an excellent product full of intriguing insights.
If you think we’re taxed to death, take a gander at the decline of Ontario’s top marginal tax rate. It was a staggering 82.4 per cent at the beginning of the 1970 recession but dropped shortly after to 59.5 per cent. Then it dropped to 50.3 per cent during the early 1980s recession and took another dip to 46.4 per cent after the 2000 tech meltdown.
It just goes to show that downturns are good for one thing – tax cuts.
Car commuters who shell out increasing sums for gas will be interested (and chagrined) by the pricing history of oil. At just over $100 a barrel today it might seem like a bargain compared to $145 in 2008. However, a mere 14 years ago you could have bought a barrel for under $11.
Since inflation hasn’t been over five per cent since 1991 and has averaged less than three per cent since 1992, you might be hard pressed to believe the oil companies claim that they can’t turn a profit if oil drops below $80.
There’s plenty of fascinating (and painful) trivia for investors. Who can resist the history of Nortel – it’s a little like scratching a scab to make it bleed. The Andex Chart notes its high of $124.50 in 2000. C’mon, hands up if you bought it at that price? And then came the staggering plummet to 67 cents only two years later.
Also in the pain department (pleasure if you bought GICs), were interest rates in the early 1980s. A five-year mortgage hit 21.5 per cent while a five-year GIC earned you a lip-smacking 17.5 per cent annually.
The graph lines advancing from 1950 to mid-2012 depict many other highs and lows. The $150,000 capital gains exemption, which was a great boon to investors and business, appeared in 1985 only to be eliminated less than a decade later.
But the federal government handed a big benefit to those saving for retirement in 2005 by getting rid of the rule limiting RRSP foreign content to 30 per cent. Of course, back then it was gospel that the Canadian stock market would always lag world markets. Forcing investors to keep 70 per cent of their money invested in Canada was a real growth killer.
That was then. Today, the average annual growth rate over 20 years of U.S., world and Canadian stocks is quite a different story at 7.5, 5.1 and 8.7 per cent respectively. Investing at home looks more appealing now especially because you don’t have to factor in currency fluctuations.
Currency is your friend if you are investing when the Canadian dollar is strong and then declines. But it can take a big bite out of your return when things go the other way. In January 2002, the loonie was at 62 cents against the greenback. It then proceeded to climb steadily to an all-time high of over $1.08 in 2007, up 75 per cent.
Those holding non-hedged U.S. investments were hit hard even though the stock market was also roaring upward to the peak in 2007. Hedged investments became very popular during those years to neutralize currency volatility.
One of the most interesting lessons in Andex Charts is found in the history of the stock market. The old TSE 300 passed the 1,000 mark in 1977; hit 2,000 in 1980, 5,000 in 1996 and the re-tooled index (the S&P/TSX Composite) struck 15,000 in 2008.
Of course, it promptly lost 50 per cent a year later. But here we are, four years after the crash and the index is back over 12,000. The lesson is that investing over time produces gains. But those who leap in and out are certain to get squashed. For more on this topic check out the Investor Education Fund’s Masters of Money series.
I hope the next step for Andex Charts is a financial Trivial Pursuit. I’m sure Warren Buffett would invest and I’d like a percentage for the idea.
Ask your financial institution for one of these delightful charts or go to www.andexcharts.com.
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