Friday, January 16, 2015

Doubleline Data Fail, The Stock Market Has been up for 7 straight years...and More!

Recently Jeffrey Gundlach from Doubleline had a conference call and soon the below chart was being passed around Twitter (even I passed it around, before stopping to think about it for a second).


However, as people may recall, we had quite strong markets in both the 80s and 90s. Yet this chart shows that the streaks never got longer than 5 years in those decades. However, a quick check of the history books will remind everyone that the market was up 8 straight years from 1982-1989 and then was also up 9 straight years from 1991-1999. Below are the 2 separate streaks. You will also notice that there was only 1 down year of -3.06% in 1990 that actually stopped it from being 18 straight years.


So how did Doubleline mess this up? Well according to their chart their source data appears to be well known shiller data http://www.econ.yale.edu/~shiller/. The excel file is here. Odd they would use this for annual returns however, because that is not the purpose of the data...and you can't get calandar year returns from the data! (or any 1 year period for that matter) You will notice they say the streak in the 1980s was only 5 years. This is because they say the 1982 run ended in 1987....only 1987 was positive 5.81%. Why did they mess up? Well Shiller doesn't quote annual S&P returns. He only gives monthly S&P levels and they are NOT the starting or ending level for the month. They are the AVERAGE S&P level for the month. So the fact of the matter is you can't get calendar year returns from this data . Here is what it looks like 
The market closed at 242.12 on 12/31/86 and closed at 247.08 on 12/31/87. That's 2% up plus the dividends got you to 5.81% for 1987. None of those numbers match the Shiller data because his data is the AVERAGE close for everyday of the month.

So now everyone can stop repeating this inaccurate information. Thanks! (yes I did it too!)
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Additional Note: I have since come across an article where Roland Kaloyan of Societe Generale states in December "Since 1875, we have never seen the S&P rise for seven calendar years in a row, so an eighth year would seem highly unlikely,". Who was the originator of this myth?

12 comments:

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