The lost era of the 1960's to early 1980's. How did investing work and not work back then?

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HenryPorter
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The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by HenryPorter »

I am slightly familiar with the time frame often described as a lost era for investing, the 1960's to early 1980's. The market went sideways basically in nominal prices whereas inflation ramped up. What can we learn from that era without delving into political discourse? Would an individual been better off in bonds theoretically, for example?
Leesbro63
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by Leesbro63 »

HenryPorter wrote: Thu Apr 02, 2020 4:36 pm I am slightly familiar with the time frame often described as a lost era for investing, the 1960's to early 1980's. The market went sideways basically in nominal prices whereas inflation ramped up. What can we learn from that era without delving into political discourse? Would an individual been better off in bonds theoretically, for example?
I think dividends were much greater (as a percent of stock price...dividend yield) then. Many invested for the dividend even if the stock price ended up going nowhere.
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HenryPorter
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by HenryPorter »

Leesbro63 wrote: Thu Apr 02, 2020 4:44 pm
HenryPorter wrote: Thu Apr 02, 2020 4:36 pm I am slightly familiar with the time frame often described as a lost era for investing, the 1960's to early 1980's. The market went sideways basically in nominal prices whereas inflation ramped up. What can we learn from that era without delving into political discourse? Would an individual been better off in bonds theoretically, for example?
I think dividends were much greater (as a percent of stock price...dividend yield) then. Many invested for the dividend even if the stock price ended up going nowhere.
There was no dotcom access to buying stocks and mutual funds back then too. And commissions were high too. Must have been more institutions investing. Mom and pop probably had marginal activity?
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by grabiner »

Leesbro63 wrote: Thu Apr 02, 2020 4:44 pm
HenryPorter wrote: Thu Apr 02, 2020 4:36 pm I am slightly familiar with the time frame often described as a lost era for investing, the 1960's to early 1980's. The market went sideways basically in nominal prices whereas inflation ramped up. What can we learn from that era without delving into political discourse? Would an individual been better off in bonds theoretically, for example?
I think dividends were much greater (as a percent of stock price...dividend yield) then. Many invested for the dividend even if the stock price ended up going nowhere.
But from 1966-1982, even including dividends, the stock market did not keep up with inflation. This 17-year period is the worst in the history of the US markets; it didn't take that long to recover from the Great Depression if you stayed in stocks and benefited from deflation and dividends.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by firebirdparts »

There was a lot of exchange rate "action" once the pegged exchange rates were removed. The drivers were a very long list of events that I wouldn't duplicate here. As a result, international investing was quite different from domestic investing. That could be good or bad, and for some people it was both, with exchange rates swinging pretty widely up and down.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by sd323232 »

who were popular companies back then ? i cant imagine stock market without goog, amzn, aapl, fb, tsla, nflx, :D
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by Gill »

sd323232 wrote: Thu Apr 02, 2020 5:51 pm who were popular companies back then ? i cant imagine stock market without goog, amzn, aapl, fb, tsla, nflx, :D
My father was an active investor during that period. I shudder now when I think of the risk he assumed then and for my Mother past the turn of the century. Much of the time he held about six or seven companies including Exxon, Texaco, Eastman Kodak, Bethlehem Steel IBM, Monsanto, General Motors, Phillip Morris and Ford. Fortunately over that period the performance of Exxon and IBM was outstanding, well offsetting the dismal performance of many of the others.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by Monster99 »

I remember high interest rates, and high commissions. I had my uncle who traded ag commodities at the time buy me a newly listed stock in a startup company called - Microsoft 😀. Had to buy 100 shares and it cost about $75 commission. I invested my entire retirement fund from my previous job of around $2000. Wow was I stupid... and lucky....
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by Geologist »

There was very little in the way of tax-deferred or tax-free (as in Roth) investing in that time. Practically everything was in taxable accounts.

Aside from general commissions on stocks being high (as HenryPorter has already noted), there were few no-load mutual funds especially early in the period (1960's).
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by kjvmartin »

Grandpa did very well on utilities and a few other blue chips throughout that time. He had a modest government job and died with over 1 million net worth. He collected his pension and reinvested most of his dividends.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by cheese_breath »

I did all my investing through my employers during that time. GM stock savings program when I was at GM and TIAA CREF at the university.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by Lookingforanswers »

sd323232 wrote: Thu Apr 02, 2020 5:51 pm who were popular companies back then ? i cant imagine stock market without goog, amzn, aapl, fb, tsla, nflx, :D
Do a search for The Nifty Fifty.

Wikipedia entry:
https://en.wikipedia.org/wiki/Nifty_Fifty

Comparison with FANG:
https://theirrelevantinvestor.com/2018/ ... fty-fifty/

As a kid, I grew up hearing a lot about the "hot" company of the era, LTV - which crashed spectacularly into bankruptcy.

https://en.wikipedia.org/wiki/Ling-Temco-Vought

https://books.google.com/books?id=gw-nL ... &q&f=false
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by Northern Flicker »

While there were some countries at the time with stock exchanges that would today be classified as emerging markets, emerging markets equities did not really exist as an asset class at the time. There were of course developed markets equities trading on stock exchanges around the world. It would have been expensive for US investors to invest in them at the time, but there were a few mutual funds with international diversification, such as some offered by Templeton, so international equity diversification was possible for US investors to achieve.

The inflationary time in the 1970’s was a time where international diversification of equities by US investors would have protected asset values greatly. In USD terms, non-US equities had a return well above the US inflation rate. Unhedged non-US bonds did as well. Paradoxically, even currency hedged int’l bonds with hedging cost similar to today likely would have done better than US bonds in USD terms. (Currency hedging was much more expensive then, so this was not an investment opportunity then). Had they existed, the sharp rise in hedge return from rising US short rates would have caused them to behave more like T-bills and less like longer-term US bonds.

Real estate, especially if leveraged with a mortgage did well in the 1970’s. Mortgages as an investment did poorly. Many mortgages were assumable back then (could be transferred to a buyer of a home from the seller) so with mortgage rates up sharply, mortgages often did not paid off when homes were sold. Extension risk was greatly amplified by assumability of mortgages relative to mortgage extension risk today.
Last edited by Northern Flicker on Fri Apr 03, 2020 3:27 pm, edited 1 time in total.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by Forester »

HenryPorter wrote: Thu Apr 02, 2020 4:36 pm I am slightly familiar with the time frame often described as a lost era for investing, the 1960's to early 1980's. The market went sideways basically in nominal prices whereas inflation ramped up. What can we learn from that era without delving into political discourse? Would an individual been better off in bonds theoretically, for example?
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by sd323232 »

Lookingforanswers wrote: Thu Apr 02, 2020 7:21 pm
sd323232 wrote: Thu Apr 02, 2020 5:51 pm who were popular companies back then ? i cant imagine stock market without goog, amzn, aapl, fb, tsla, nflx, :D
Do a search for The Nifty Fifty.

Wikipedia entry:
https://en.wikipedia.org/wiki/Nifty_Fifty

Comparison with FANG:
https://theirrelevantinvestor.com/2018/ ... fty-fifty/

As a kid, I grew up hearing a lot about the "hot" company of the era, LTV - which crashed spectacularly into bankruptcy.

https://en.wikipedia.org/wiki/Ling-Temco-Vought

https://books.google.com/books?id=gw-nL ... &q&f=false
Walmart was trading back then? Dang, imagine going all in on walmart back in 1960s......
ReadyOrNot
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by ReadyOrNot »

I think the thinking then was stocks were risky. If you wanted to copy what companies were thought to do to pay pensions, you would try to get bonds to match your future liabilities or income needs. I think you could probably get US Treasury bills for a safe fixed income. When money market funds became popular, they probably could keep up with inflation, before taxes. Those who had to pay excessive taxes could probably do OK with municipal or other tax-free bonds.
And Social Security provided a nice inflation-indexed base.
Also you probably would have considered jobs that had pensions.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by Leesbro63 »

ReadyOrNot wrote: Sat Apr 04, 2020 5:21 am I think the thinking then was stocks were risky. If you wanted to copy what companies were thought to do to pay pensions, you would try to get bonds to match your future liabilities or income needs. I think you could probably get US Treasury bills for a safe fixed income. When money market funds became popular, they probably could keep up with inflation, before taxes. Those who had to pay excessive taxes could probably do OK with municipal or other tax-free bonds.
And Social Security provided a nice inflation-indexed base.
Also you probably would have considered jobs that had pensions.
Social Security wasn’t indexed for inflation until 1975.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by jharkin »

HenryPorter wrote: Thu Apr 02, 2020 4:47 pm
Leesbro63 wrote: Thu Apr 02, 2020 4:44 pm
HenryPorter wrote: Thu Apr 02, 2020 4:36 pm I am slightly familiar with the time frame often described as a lost era for investing, the 1960's to early 1980's. The market went sideways basically in nominal prices whereas inflation ramped up. What can we learn from that era without delving into political discourse? Would an individual been better off in bonds theoretically, for example?
I think dividends were much greater (as a percent of stock price...dividend yield) then. Many invested for the dividend even if the stock price ended up going nowhere.
There was no dotcom access to buying stocks and mutual funds back then too. And commissions were high too. Must have been more institutions investing. Mom and pop probably had marginal activity?
Mom and pop had pensions or bought whole life insurance. Few individuals invested directly in the stock market prior to the invention of 401k and IRAs.

I’m relatively young (70s baby) and While I had a 401k at my very first full time job it didn’t even offer an index fund option until later.. mid 00s or so.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by rustymutt »

sd323232 wrote: Thu Apr 02, 2020 5:51 pm who were popular companies back then ? i cant imagine stock market without goog, amzn, aapl, fb, tsla, nflx, :D
I recall owning Dresser Industries, an oil servicing company. I made money through my broker, Smith Barney.
It was a call option as I recall. Later I learned my broker was buying and selling without my permission.
He was not a fiduciary, which I didn't understand at the time. He was fired after I filed a complaint with them.
I wasn't able to recover the losses this wacko caused me. He was just trading for commission. Which was legal at the time.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by BV3273 »

Bond yields were kind of high back then. Weren’t they?
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by cheese_breath »

BV3273 wrote: Sat Apr 04, 2020 8:16 am Bond yields were kind of high back then. Weren’t they?
I don't know about bonds, but the GM Demand Notes interest got up to somewhere around 17% in the early '80s.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by a_movable_life »

That's when DRIP's were popular? I think you mailed off a check and got fractional ownership in Blue Chips. Coke I think was popular. The program was usually run by the company?
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by JoMoney »

Stocks across the period did ok, there were some periods that were much worse than others.
Cash - from a "risk/return" context did great.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by LFS1234 »

HenryPorter wrote: Thu Apr 02, 2020 4:36 pm I am slightly familiar with the time frame often described as a lost era for investing, the 1960's to early 1980's. The market went sideways basically in nominal prices whereas inflation ramped up. What can we learn from that era without delving into political discourse?
I don't think one can understand that era without understanding the tax policy of the time, and especially the effect that inflation has on capital gains.

The DJIA reached a high of 990 (almost 1000) in January 1966, and subsequently bounced in a 600 - 1000 range for seventeen years, before finally breaking out on the upside in December 1982. So a dollar invested in the DJIA in 1/1966 would only have been worth that same dollar in 12/1982, except for the fact that that dollar had lost 2/3 of its initial value to inflation during that period of time.

If the appreciation of your personal portfolio had done three times as well as the DJIA - say you invested $100K in 1/1966 and sold for $300K in 12/1982, you would have owed capital gains tax on that $200K gain, even though that gain was completely illusory - your $300K in 1982 was actually worth less than your $100K in 1966, due to rampant inflation. During times of low inflation and high stock appreciation, we tend to forget this tax effect; but during times of high inflation and low stock appreciation, the capital gains taxes can be absolutely brutal.

After years and years of experience of paying high taxes on illusory gains as well as high taxes on dividends (which were taxed as ordinary income at the time), it is understandable that people decided to avoid stocks. It is also understandable that this led to stocks being, we know retrospectively, very inexpensive.

A good investment strategy during that period of time, which we as always know only retrospectively, was to borrow money and invest it in appreciating assets, and to avoid ever selling those assets unless there was a capital gains tax exclusion available. The money during much of this time was not only available at negative real interest rates, but the interest was fully tax-deductible regardless of what it was spent on (if I recall correctly). Real estate fit the bill on both of these criteria, and many of those who mortgaged themselves to the hilt to buy good homes in good areas became wealthy.

In other eras, people have tried that same formula and lost everything.

What can be learned from any era is that conditions change, that there is much that cannot be known prospectively, and that to gamble everything on any one particular scenario unfolding (or not unfolding) is dangerous. You always have to be prepared for a number of different scenarios, including contradictory ones. Diversification is always desirable, having a sufficient emergency reserve is always desirable, and debt should only be taken on when one has a back-up plan for dealing with it in case the primary plan fails.
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by jhsu802701 »

I've often lamented that I was too young to buy stocks back in 1974 and 1982. There is now a GREAT opportunity for buying stocks - foreign stocks! There are plenty of diversified foreign stock funds selling near or below book value. My favorites are MOTI, DGRE, DFJ, DGS, IQIN, GWX, and FNDC.
DFJ: Japan - small cap dividend | DGS: emerging, small cap dividend | MOTI: international moat stocks | IQIN: large cap, developed | DGRE: emerging, dividend growth | GWX and FNDC: small cap, developed
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Re: The lost era of the 1960's to early 1980's. How did investing work and not work back then?

Post by Leesbro63 »

LFS1234 wrote: Mon Apr 06, 2020 11:41 am
HenryPorter wrote: Thu Apr 02, 2020 4:36 pm I am slightly familiar with the time frame often described as a lost era for investing, the 1960's to early 1980's. The market went sideways basically in nominal prices whereas inflation ramped up. What can we learn from that era without delving into political discourse?
I don't think one can understand that era without understanding the tax policy of the time, and especially the effect that inflation has on capital gains.

The DJIA reached a high of 990 (almost 1000) in January 1966, and subsequently bounced in a 600 - 1000 range for seventeen years, before finally breaking out on the upside in December 1982. So a dollar invested in the DJIA in 1/1966 would only have been worth that same dollar in 12/1982, except for the fact that that dollar had lost 2/3 of its initial value to inflation during that period of time.

If the appreciation of your personal portfolio had done three times as well as the DJIA - say you invested $100K in 1/1966 and sold for $300K in 12/1982, you would have owed capital gains tax on that $200K gain, even though that gain was completely illusory - your $300K in 1982 was actually worth less than your $100K in 1966, due to rampant inflation. During times of low inflation and high stock appreciation, we tend to forget this tax effect; but during times of high inflation and low stock appreciation, the capital gains taxes can be absolutely brutal.

After years and years of experience of paying high taxes on illusory gains as well as high taxes on dividends (which were taxed as ordinary income at the time), it is understandable that people decided to avoid stocks. It is also understandable that this led to stocks being, we know retrospectively, very inexpensive.

A good investment strategy during that period of time, which we as always know only retrospectively, was to borrow money and invest it in appreciating assets, and to avoid ever selling those assets unless there was a capital gains tax exclusion available. The money during much of this time was not only available at negative real interest rates, but the interest was fully tax-deductible regardless of what it was spent on (if I recall correctly). Real estate fit the bill on both of these criteria, and many of those who mortgaged themselves to the hilt to buy good homes in good areas became wealthy.

In other eras, people have tried that same formula and lost everything.

What can be learned from any era is that conditions change, that there is much that cannot be known prospectively, and that to gamble everything on any one particular scenario unfolding (or not unfolding) is dangerous. You always have to be prepared for a number of different scenarios, including contradictory ones. Diversification is always desirable, having a sufficient emergency reserve is always desirable, and debt should only be taken on when one has a back-up plan for dealing with it in case the primary plan fails.
Great post/explanation. "Diversify" seems to be the lesson from this.
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