All in a day's work

This post is just to bring about some thoughts to the current situation which hopefully some of you might find interesting.

1. The first huge spike from the left of the chart on 1929.

Right before the run-up, we can see some resistance from 1900 to 1926 before a bull run that ended in 1929. This run increased Dow Jones by a good 138% within 4 years.

That spike happened in 1929 before it collapsed to 44.17 points, this also meant that within 4 years, Dow Jones lost almost 89.2% of it's value.
I stress again, 89.2%.

2. The recovery from 1929.

If an investor added a position at the peak of the bull run on 1929, he would have to wait 30 years before he managed to break even, not considering the dividends that he might received throughout the entire holding period.

This once again stresses the importance of entry price for long term holding as it determines the yield thereafter from divvy.

After the recovery to it's previous high which took 30 years, the stock market tanked for almost another 30 years, from 1958 - 1986 thereabout.

3. The break of the 1000 mark and beyond

This historical peak of 1,000 was finally breached around 1983. This is the start of a monstrous run which was never seen in history.

Since 1983 till 2008, a period of 25 years, Dow Jones not only broke the 10,000 mark but in fact hit 13,930. In 25 years, Dow Jones increased 1393%.

Once again, I repeat myself, in 25 years, DOW JONES went up 1393%.

A few questions which I think can be pondered on would be:

1. Did the economy improve so much in the last 25 years to warrant such an astronomical increase, if we consider that the saying of the stock market being a reflection of the economy is true.

2. What then could be the reasons for such a sudden increment in Dow Jones

3. If PE ratio is a reflection of the investor's confidence in the company's future earnings, what motivated them to push PE ratios upwards

4. What causes Dow Jones to lose almost 90% back in 1929 (This can be easily found online, just google it.)

5. Lastly, will this be a repeat of 1929 or rather, has the run-up been way too strong to be justified by current share prices implying room for further drop, back to the times when the stock market reflects the economy in that time.

Here is my view on the million dollar question. First let us take a look at the property cycle.

There is a constant opine throughout that property lags the economy as an asset class. Even recently, we can see this trend even in Singapore. There was a good run uptrend in the economy and property prices started rising till the point when everyone was saying that it's too expensive. Then "BAM!", we all know what happen after this. Now property prices are coming back down again. A boring cycle indeed, but can you identify with it? Are there lessons to be learnt?

Why then does the property lags the economy.

A booming economy will bring in the monies to the bank and for this to happen, time is required. When everyone seems to be very comfortable with the amount of money set aside, they look to invest in the most physical asset, property. When the demand increases, prices increases. It's normal. A property asset require a huge amount of money and housing loans would normally be subscribed for their very purpose. This result in a man laden debt, who still holds the positive mindset that the good economy will last. When a crisis hits long enough for everyone to realise that the good times are gone, a primitive man's psychological reaction would be to protect himself and his needs, thus the demand for property drops resulting in the drop in property prices/value. This will generally also cost a reduction in expenditure in the economy throughout.

How does that relate to a bottom then.

In a crisis like this, companies bankrupt and employees retrenched. Both these incidents will have negative effect on the economy but the time before the impact is felt also require time. This I think is pretty easy to comprehend and I won't spend too much time explaining. In 2H2008, we see the liquidation of banks and retrenchment of staffs and at the start of 2009, more retrenchment news (Alcoa)and liquidation of operations (LyondellBasell) was announed.

If companies are not making profits and unemployment rate is high worldwide, why is there a good reason for a rebound or rather, should any rebound be taken seriously and result in you jumping into a position?

Although I also know that it's been said that share prices are at their lowest even before the economy shows it. (I forgot the term used to relate this but try to understand.. haha!) But do you think things might be rosy again soon? If so, how soon?

Share with me your thoughts!

Toyota is one of the best-run companies in the world. Much of its success is due to "lean thinking," a concept that aims to create additional value for the end customer, according to Mike Morrison, Dean of Toyota University

I was rather shocked when I heard this news over the TV, not by the fact that such a decision was made but the length of time it has decided to stop it's production. That's effectively 1/3 of a month !! Can your company stop production for 11 days ?

Obviously, this recession has effectively affected Toyota that it has decided to make such a drastic move. By the way, Toyota is considered world wide as one of the few companies which has a fantastic culture and management system. Just look at their rise to their current status.

Toyota Management Style is influenced by Taiichi Ohno, who developed the Toyota Production System. Quote: "I feel strongly that the word 'work' refers to the production of perfect goods only. If a machine is not producing perfect goods, it is not 'working'."

• Many of you till now may think that this is just another IDEAL but Personnel in the production line has the power to halt the production when malfunction occurs.