3 Decades of Movers and Shakers : Stock Swings Were a Lot Wilder in 1960s, 1970s and 1980s

As wild as the stock market’s ride has been this year, investors who were around in the 1960s, ‘70s and ‘80s might well label us wimps for complaining.

Gateway Investment Advisers of Cincinnati calculates that the average daily move (the ups and the downs) in the blue-chip Standard & Poor’s 500 index has been 1.4% this year through October.

That is well above the 1.02% average daily move of 1996 and double the average of 1994. In fact, the year-to-date daily average move is the highest since the late 1980s.

But so what? Gateway notes that the average for the 1960s overall was 1.54%, and that also was the rate for the decade of the ‘80s. In the ‘70s the S&P;’s average daily move was even larger: 1.83%.

So by this particular measurement of volatility, the market still looks calmer than it was in the three previous decades.

It’s also worth noting that although 1.4% might sound like a significant daily move--it’s about 106 points on the Dow Jones industrial average at current levels--that is the equivalent of 42 cents on a $30 stock, or 70 cents on a $50 stock.

Volatility can be measured in many ways, however. Economist Anthony Chan of Banc One Investment Advisors Corp. in Columbus, Ohio, recently charted the volatility of the S&P; 500 as measured by its standard deviation--essentially, the degree to which the return has varied from its historical mean.

By that gauge, the S&P; has been dramatically more volatile in the 1990s than in the ‘80s. But in large part, that’s because the stock market has mostly been a one-way ticket in this decade--meaning, up. Stocks’ returns have been sharply above their historical trend, especially since 1994.

And, of course, no one really complains about that kind of volatility, except perhaps people who are sitting on the sidelines.

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Still, many investors sense that the large swings in the S&P; and the Dow Jones industrial average over the last few months must be indicative of something.

Is the great bull market of the ‘90s topping out? Maybe. After the Dow gyrated 1.3% or more each day Aug. 15 through Aug. 21, longtime bear James Stack of the InvestTech market letter in Whitefish, Mont., did some digging.

He found there had been only five previous times in this century when the Dow experienced five consecutive days of 1.3% moves (up or down) when the index was within 10% of its yearly high, which it still was at that point in August.

In each case (the occurrences were 1987, 1946, 1928 and twice in 1919), the Dow suffered a drop of between 19% and 70% from the then-current level within the next three years.

Does that mean history must repeat? Of course not. And even if you find Stack’s data compelling, three years is a long time frame in which to place the likelihood of a bear market. Stocks could surge from current levels for the next two years, then crash in the third, and Stack could still claim that this “indicator” was correct.

The point is, although increased volatility can indeed signal a market top, that isn’t carved in stone. Bull market tops often are very individual in their patterns and duration. That’s the perverse beauty of the market: It’s as unpredictable as any force of nature.

Those Pesky Capital Gains: Many stock mutual fund investors know by now that they should be careful about buying funds in November or December, because that’s when the funds generally make their annual capital gains distributions.

If you buy just before a gains payment is made, you don’t lose money, technically; you just wind up with more shares of the fund at a lower price (adjusted for whatever the gains payment is, per share).

But you really do lose money in the sense that you suddenly have a taxable gain for the year, on which taxes must be paid by April 15 of the next year.

Thus, many financial pros advise postponing fund purchases until late December or until just after a fund makes its annual gains payment.

Naturally, that advice doesn’t apply if you’re investing through a tax-deferred account (a 401[k] or individual retirement account) because taxes aren’t a worry.

And Morningstar Inc., the mutual fund tracker, notes that some stock mutual funds are more likely than others to have significant capital gains payments this year because of staff changes.

For example, because Fidelity Investments made so many fund manager changes during the year, some of its stock funds may have larger than usual payments if the new managers significantly restructured the portfolios, selling stocks and thus realizing capital gains, Morningstar notes.

Other funds Morningstar believes could generate unusually large gains payments because of manager changes include Putnam Health Sciences, Berger 100, SteinRoe Special and Kemper Growth.

Spanish Investor Guides: The Investment Company Institute, trade group for the mutual fund industry, is making three of its investor guides available in Spanish. The pamphlets, 13 to 17 pages each, give the basics on the three major types of investment companies: open-ended mutual funds (the standard type of mutual fund); closed-end funds; and unit investment trusts. The guides are free. Write: ICI, P.O. Box 27850, Washington, DC 20038-7850.

Hyperbole Alert: The World Gold Council, arguing that stock prices and bond prices have tended to move in the same direction quite often in recent years, contends in a new report that “the traditional balanced [stock-and-bond] account concept of diversifying a portfolio is no longer valid.” Its solution for stock investors who want to diversify: buy gold, of course. The report was written just before gold’s latest slide to 12 1/2-year lows--which, oddly enough, has occurred in tandem with weakening stock prices. . . .

The stock letter Visionary Investment Journal leads its latest issue thusly: “Strange but true: A devastating market sector correction, a global sell-off on gold, a revolutionary war, and the low-level geography skills of North Americans have substantially increased the immediate investment merits of International Panorama Resource Corp.,” an obscure little firm that aspires to mine copper and cobalt in Africa. The newsletter’s fine print notes that “certain companies may pay an advertising fee for a complimentary mailing of this newsletter.”

Tom Petruno can be reached at tom.petruno@latimes.com