Especially if you’ve been doubting the idea that common stocks are useful as an asset class for healthy long-term returns. Judging from many comments in the media and individual investors that doubt this construct to be real, I am presenting a chart extracted from a headline article in MarketWatch (the on-line service of the Wall Street Journal). Kudos to the MarketWatch and author, Paul Merriman, for “Eight lessons from 80 years of market history.”
Although Merriman provides very compelling data (as you’ll see in the chart below), nobody seems to care. Mind you, this was a headline story this morning in MarketWatch (11/19/2014), yet it never trended in the “top Five” articles accessed by s subscribers. I guess the title wasn’t sexy enough (unlike the eye-catcher I penned for this post). Who wants to learn about history anyway…BORING.
I’m not afraid of being boring and I think history is important. And, I think the table below, while it may not blow your mind, might give you some confidence in down times that there may be a tomorrow and it could be pretty bright. Please take note of the two ten year periods after the last secular bear market (1966-1982–16 years below 1000 on the Dow Jones Industrials). Though the 1980s numbers were great, they were followed by another great decade in the 90s. As to those who are looking at the last 5 years and saying it cannot last, these two decades are a strong counterpoint. Again, this does not preclude sharp and scary (even violent) corrections. We had one in 1987 after the market had run from Dow 1000 in 1982 to Dow 2700 in 1987 (up 170% in 5 years). We lost 1000 of those 2700 points within a few months of that peak. Interestingly, though, we’re only up 33% after the 13-year secular bear market that ended in 2013. Ergo, based on the 1980’s /1990’s example, we may have further to go.
Past performance is no guarantee of future results
But, this is pretty compelling stuff
DECADE RETURNS 1930 THROUGH 2009
The following are 10-year annualized percentage returns for the S&P 500 Index, U.S. Large Cap Value, U.S. Small Cap and U.S. Small Cap Value. Returns are in %s.
|S&P 500 Index||-.1||9.2||19.4||7.8||5.9||17.5||18.2||-.9||9.7|
Includes reinvestment of dividends. Source: Dimensional Fund Advisors.
PLEASE READ ENTIRE ARTICLE, “8 Lessons from 80 years… “. There’s lots more on risk taking and asset allocation.
If you happen to be so unfortunate as to buy into the market at a generational top (1929, 1966 or 2000), you might need some patience to realize your dreams. It took 23 years for the market to completely right itself and move to new highs after 1929.In the case of 1966 and 2000 it took 16 years and 13 years respectively. The good news is we are only 14 yeas past the 2000 top. With any luck the next one will be the next generation’s problem.
If this hasn’t quite blown your mind, I hope, at least, it gave some food for thought.
What did you think?
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