22 November 2008

Four market downturns at various scales

Hello -

I produced a few plots tonight of various indices for the crash of 1929, 1987, the 2001 dotcom bubble, and the current crisis. I'm not drawing any conclusions, they're just data. I was particularly curious about the timescale of how long it took to recover from each crash.

By the way, am I the only person who has a frustrating time dragging images to the location where I want them within Blogger? They always load at the top of the post, regardless of where my cursor is.

Here we are, now. (In all cases you can click the photos to zoom in.)



And here is the dotcom bubble bursting. Although WikiPedia puts it at 2000 - and judging from the chart it's right - I recall it being in the first quarter of 2001. Well, I suppose the dotcom crash was 2000, followed by what felt like a rally, only to encounter the telecom bubble bursting in 2001. The NASDAQ never did reach those heights again, right? (The Dow is in red, NASDAQ in blue.) This is the value of a dollar invested Jan. 1, 2000:



I find the brief uptick regions interesting. I imagine for each that we were all hoping, "Hey, this is it, we're coming back to normal again."

1987 - Do you remember "Black Monday"? I was in 8th grade at the time, engaged in a school stock market simulation. It was a perfect educational opportunity for us, but also probably nightmarish for our parents. I also recall that winning teams had picked DEC (Digital Equipment Corporation).



When newspapers show you stock charts, they usually position the y-axis around the region of activity. It looks quite different with a zero-centered y-axis. (Actually, real traders look at this stuff on a log chart, which is better at expressing % changes.)

See? Here's October 1987 but with the y-axis on 0:



Here is what your dollar would be worth if you had invested in the Dow on Oct. 1, 1987. I find those undulations interesting and would like to look at various sectors to see which are leading or lagging indicators...



Let's follow that dollar for a couple of years. Looks like the right strategy was to hold on:



We hear pundits referring to the crash of 1929. What did it look like?



...and here is the Dow's struggle to return to that value:




Quick, G-Fav, say something positive!

-g

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