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Time Horizon of Stock Markets

Last night Wall Street ended trading at its lowest level since the end of October 1997 as indicated by the S&P500 index which closed at 921.39. The tech-stock driven Nasdaq index also hit five-year lows, ending the week at 1373.50, the lowest close since May 1997.

People are moved by the rise and fall of stack markets. The latest changes and index levels wouldn't be on the mass media unless they were stimulation to the masses. The paradox of this is that stock markets themselves are the barometer of human behaviour. The prices at which shares trade are a complex mix of the reaction of the individual trader and fund managers to self promoting news stories from CEO's and brokers.

Behind the changing levels of company share prices, for most companies and their employees, daily life goes on as normal with customers being provided with products and services and dividends being paid on time to shareholders. The only real life relevance of share prices is for people who are becoming investors by purchasing shares and people who are drawing down on their capital to supplement income - usually late in retirement. The real story behind sharemarket levels is how long should this period between investing and drawing down?

Financial Demographics has looked at this for nine different stock markets over the last 20 years. The results for the longest period for being invested and selling without gain (allowing for reinvested dividends) are as follows:

* Australia - 6.7 years from September 1987 to May 1993

* US - 2.5 years from December 1999 to July 2002

* Japan - 13 years and still 70% below December 1989

* Germany - 3.7 years from Mar 1990 to December 1993

* UK - 1.9 years from August 1989 to July 1991

* Hong Kong - 3.8 years from September 1987 to July 1991

* Taiwan - 12 years and still 60% below January 1990

* South Korea - 7 years and still 40% below October 1994

* Singapore - 2 years and still 40% below December 1999

Posted Saturday, 13 July 2002

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