Post Crash Returns

[no_free_lunch]

Interesting article from Mebane Faber on various historical returns after sectors/industries/countries have seen large declines.

 

http://www.mebanefaber.com/2013/06/25/what-happens-when-you-buy-assets-down-80/

[Guest hellsten]

Very interesting. The presentation of the data could be better. I assume the statistics mean that, for example, the Greece stock market which declined >90% could return 156% from the market bottom in 2012.

 

Athens Stock Exchange Composite Total Return Index:

http://www.marketwatch.com/investing/Index/SAGD?countrycode=XX

52-range 785.72-1,656

 

Athens Mid & Smallcap Index:

http://www.marketwatch.com/investing/index/dmk?countrycode=xx

52-range 1,624-3,726

 

I found this interesting quote through that site:

 

I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting there and trying to dream it up all yourself. Nobody’s that smart.

 

— Charlie Munger

[SwedishValue]

Thanks, interesting and useful!

[no_free_lunch]

Hellsten, I agree completely, summary stats are difficult to interpet.  I mean:

 

1) How do they determine what the high point is?  Is it the highest point over past 52 weeks, 5 years, ever?  It makes a difference.

2) How many trades are there?  That is, if it stays in this 50-90% down range for several years, how many times does it count?

3) Median, stdev would be nice.

4) How many cases were 0's?

 

I just view it as interesting data, that warrants investigation.  I have always wondered if you could just blindly buy pools of deeply discounted stocks and what the returns would be like.  Given this data, it might be worth the time to put a study together and figure it out.

 

Regarding Greece, I believe that you are interpreting the results correctly.  Faber also did a study where he looked at the effects of low CAPE on returns and while the outcome wasn't as high, I think it was still ~15% CAGR after inflation.  I cannot trade foreign securities but have been thinking about the GREK ETF.

[no_free_lunch]

I did a bit of digging on individual Greece companies.  Have you found that they are not actually all that cheap?  Coke HBC for instance has an adjusted quarterly EBITDA of $90M but a market cap of $5.2B.  It seems more on the expensive side if anything.  All of the companies I have looked at do not appear that cheap, even when you look at prior years earnings. 

 

This is based admittedly on a very quick look.

[SharperDingaan]

Whatever Greek companies do will be vilified by the market, & it will primarily be just because its popular. But 5 years out, ... it's a very different story - Iceland, Ireland, etc.