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Was Warren Buffett Right When He Said “Don’t Bet Against America”?

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Is S&P 500 The Best Index For All Investors? 


On May 3rd, Warren Buffet held an online session in which he addressed Berkshire Hathaway shareholders. In a much tweeted discussion, he said not once but twice: “Never Bet Against America”

I wanted to test Buffett’s challenge against other Market Indexes. So here’s what I did. 

The Methodology

  1. I gathered daily adjusted closing price data from Jan 1 2000, for the following markets. Most of the data is from Yahoo Finance.
    1. USA: SPY SPDR S&P 500 ETF, tracks the top 500 large cap companies listed in the US Stock Market
    2. UK: FTSE 100 is an index of the top 100 large cap companies listed in the London Stock Exchange (LSE).
    3. Germany: DAX index is the major stock market index for Germany and contains the 30 largest German blue chip companies. 
    4. HK: Hang Seng or HSI constitutes top 50 companies in the HK Stock Exchange.
    5. China: SSE Index constitutes all companies in the Shanghai Stock Exchange.
    6. Singapore: STI or Straits Time Index tracks the top 30 companies by market capitalization in the Singapore Exchange.
    7. India: BSE or the Bombay Stock Exchange Index tracks the top 30 companies by market capitalization.
    8. South Korea: KOSPI or The Korea Composite Stock Price Index tracks the top 200 large cap companies in South Korea’s Exchange.
    9. Japan: Nihon Keizai Shimbun, or the Nikkei 225, tracks 225 of the large cap companies in the Japanese Stock Market
  2. Hypothesis: What would be the absolute returns for an investor if he invests 1,000 units of corresponding currency on the same day every year in these different indexes? For ex, what would be the current value of his investments, if he invested $1,000 every year in S&P 500 for a certain number of years?  Or what if he invested ¥1,000 every year on the same date in the Nikkei 225 or €1,000 every year on the same date in the DAX Index? 
  3. I captured the adjusted closing price of each stock on required dates. I then calculated the 1, 3, 5, 10, 15 and 20-year returns for each index in their respective currencies. The period starting date is May 21st of 2019, 2017, 2015, 2010, 2005, and 2000. The period ending date is always May 20, 2020. 
  4. I am presenting the findings below in pretty colorful charts. 

Quick Takes

If TL;DR, then, the conclusion is of course Warren Buffett is spot on. 


No index beat the US S&P 500 index in 1, 3, 5, 10 or 15 years in absolute percentage returns. (Each index is calculated in the corresponding country’s currency).


The Bombay Stock Exchange, or BSE in India is the only one that outperformed S&P 500 in 20 years in absolute percentages.


So, if you are earning and spending in India (i.e, in INR), and you could have invested in BSE Index 20-25 years ago, you would have made a handsome return today. However, if you were earning and spending in USD or AED, and invested in BSE Index 20 years ago, you would surely have been better off investing in S&P 500. Indian currency has devalued significantly over the past 20 years. The average USD-INR rate was 45.68 and on May 20, 2020, 1 USD would fetch you INR 75.58, a 65.5% depreciation. I have presented my findings on this too, skip to the bottom to reach there first.

The Analysis


1-year return

Indexes Blog May 20 - Chart 1 1 year return


Chart 1


As you can see, in the past 12 months, despite the massive crash due to #Covid19, the S&P 500 has rebounded enough that it is the only index with positive returns of 5.8%. This is a healthy return considering a dollar denominated Fixed Deposit would net you barely 1% to 2%. India, Singapore and the UK had the worst performing indexes in the last 12 months with their respective indexes returning losses of nearly (21%), (20%) and (18%). The Shanghai Stock Exchange, SSE was almost flat in returns yielding a (0.8%) loss.


3-Year Returns

Indexes Blog May 20 - Chart 2 3year return


Chart 2


The story doesn’t change much if we compare absolute returns for the past 3 years. What surprised me is that even in the 3-year period, the S&P is the only index that had positive returns of 16.7% or 5.56% per annum on average. STI and FTSE were the worst performing stock markets losing (22.5) and (20.6%). I am tempted to analyze the GDP growth of Singapore and UK to see if there is any correlation. Why does SSE investments have negative returns, when China has had sustained GDP growth even if the rate of growth has declined over the past few years? China is essentially holding the purse strings for the world, right?


5-Year Returns

This image has an empty alt attribute; its file name is Indexes-Blog-May-20-Chart-3-5year-return-1-1024x526.jpg


Chart 3


For the first time, we are now seeing one more index showing a very modest positive return. If you had invested in Japan’s Nikkei 225 for the past 5 years, your investment would have grown by 3.3%. India’s BSE returns are nearly flat at 0.4%. Of course, these are tiny compared to S&P 500’s total return of 32.1%, or an average return of 6.42% per year.


10-Year Returns

Indexes Blog May 20 - Chart 4 10year return


Chart 4


Now, I get to repeat my mantra that “Time In The Market matters”. Except for STI, FTSE, and KOSPI, all other indexes would return positive, with a consistent yearly investment over the past 10 years. However, I don’t think a Hong Kong investor, or a Singapore Investor would be happy to see a measly 5.4% and 4.6% return after diligently investing every year for 10 years. 


An investor in S&P 500 would be happy as he would see an almost 91% gain. This would make me happy for sure.


An Investor in Japan, India or Germany would see modest growths of 46.4%, 33.1% and 25.1%. Honestly, I wouldn’t be happy with any of these returns.


15-Year Returns

Indexes Blog May 20 - Chart 5 15year return


Chart 5


FTSE just has been terrible for investors. Even after 15 years of consistent investing, the FTSE lost out and so if you had invested £15,000 over the past 15 years, today you would have £14,867 for your troubles. 


The S&P 500 on the other hand would reward your loyalty with a 133.5% return so that the $15,000 you invested over the 15 years would be worth $35,028.


20 Year Returns

Indexes Blog May 20 - Chart 5 20year return


Chart 6


Finally, we really have something to talk about. If you are an Indian investor and had been steadfast in the last 20 years investing in the BSE, your wealth would have grown by a whopping 247% beating the S&P 500 returns by a mighty 80% almost. S&P 500 grew 167.8% in the same period.


I was so confused about FTSE that I had to check the data 5 times. Inexplicably, I don’t get it. Perhaps, this could be additional research for another blog.


Did India Beat USA?


In absolute returns, if an Indian invested ₹1,000 every year on May 21st for the past 20 years, his total ₹20,000 investment would be worth ₹69,403 today. If an American invested $1,000 every year on May 21st for the past 20 years, he would have $53,550 today. So, in absolute terms the BSE outperformed S&P 500. 


However, what if the Indian investing in BSE actually lives and works in USA or in a country whose currency is pegged to the dollar like say the United Arab Emirates? How would his investments fare then? For a fair comparison then, we need to convert $1,000 into INR for each investing date. Then we would convert the total returns in INR back to USD at today’s forex rate. I already did it. The chart below summarizes my findings.

Indexes Blog May 20 - Chart 7 BSE Vs SP 500


As you can clearly see, dollar for dollar, the S&P 500 significantly outperformed the BSE in all periods. What this means is that if you invested $1,000 every year in BSE Index for 20 years, each year your dollars would be converted in INR based on the then existing exchange rate. In INR, the investment would be worth, ₹3.36 Million today, May 20, 2020. So, today if you wanted to liquidate your investments in BSE, and convert it to USD, you would get $44,468. Instead, had you remained invested in the S&P 500 you would grown your wealth to $53,550. That is the same as ₹4.05 Million. Unfortunately, the impact of Covid19 pandemic has only worsened an already weak stock market in India. 


Conclusion


When the Oracle of Omaha speaks, its best to listen. 


If you would like to see what your investments would be had you consistently invested in the S&P 500, I have built a nifty wealth calculator you can use. Check to out here.

If you would like to understand more, please feel free to reach me, on Twitter @saq3 or LinkedIn @Shaheeda Abdul Kader, or leave a message at say @shaheedasays.com. I’d be happy to offer you my services.

Disclaimer:

I am NOT a certified broker or financial advisor. Please DO NOT make investment decisions based solely on my blogs. My intention is to show you how to research stocks or funds for yourself so you can feel empowered and knowledgeable to do your own investigations and invest with confidence. It is best to consult with your broker or advisor if you have questions. You can also reach me and I’ll do my best to help you with your queries.

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Shaheeda Abdul Kader

After 25 years of working for corporations, being an entrepreneur and managing investments for my family, I now want to help others find their financial freedom