January 9, 2009

Stock day trading – Not shown in the table are dividends, which would have been considerable, amounting to about $1,000 during the last year alone.

The main point, however, is that our hypothetical investor did much better by buying his stock in slow stages than he would have done by purchasing $15,000 worth at the beginning. A LONG-TERM PROFIT PROFILE Results of another hypothetical experiment, this one based on the market as a whole, are presented in a booklet published by the New York Stock Exchange.2 The booklet reports the conclusions of a study made by two professors at the Bureau of Business Research at the University of Michigan, designed to test the effectiveness of dollar averaging over a complete market cycle. The period began January 15, 1937, and ended January 15, 1950. This period had the advantage of being long enough to give a fair picture, and the market”as measured by the Dow-Jones Industrials”stood at approximately the same point at the end as at the beginning. To eliminate the danger of hindsight, the researchers used a total of 92 stocks, selected by a mechanical method, but, as it turned out, representing a broad cross-section of American industry.