Wednesday 25 March 2009

My fortunes rise and fall with the market

Having pulled the daily market closing data to update my EW Timing Indicator I plotted the daily market movements so far for 2009 against my daily net worth figures. As expected, my NW moves in lock-step with market movements, and a plot of net worth against the Australian All Ords index shows a linear relationship with a correlation coefficient of around 0.89 - I suspect the correlation would be even higher except that I sold off about 25% of my stock portfolio a couple of weeks ago. That change is visible in the second chart which plots both the All Ords Index and my Net Worth over time. The NW slope back up during the past two weeks has been less than the market, which means that unless I reinvest in the market as it recovers (and my gearing levels drop to more reasonable levels) I wouldn't get back to my previous maximum net worth if the market reaches it's previous peak.

According to the fitted linear relationship, each one point increase in the All Ords index boosts my net worth by around $175. Which explains why it was a lot more enjoyable watching the market rise from 2003-2007, than it has been watching the "Great Recession" take it's toll over the past 18 months.

Subscribe to Enough Wealth. Copyright 2006-2008

1 comment:

bettysonly said...

Honestly, I don't know anything about the stock market. That is something that I have said I was going to learn.

What goes down must go up. I see the growth. I may take sometime to go up but it will. I have always heard, it takes money to make it.

W. Jackson