In numerous previous posts such as Winning the losers game and Mutual fund trap Ive discussed the foolishness of long-term investing and the lack of performance. This time Im going to use a graphic to explain it better: 139-Year Total Return Index of the stock market
Bob Bronson of Bronson Capital Markets Research created the image. The Bronson folks spliced two databases: one maintained by Yales Robert Shiller going back to 1870 and a second called the Cowles Commission Database, which is a no-survivor-bias database.
The top part of the graph shows a capitalization weighted index of all U.S. common stockscurrently about 6,000 (excluding 4000 non-common stocks). This index has been inflation adjusted and includes the reinvestment of dividends. The bottom indicator (shown in blue) is a rolling16-year annualized return of the stocks in the database.
The graph is on a log scale so its not really linear, but it does offer insight into the stock market pyramid. It depicts a 6.6% annualized growth in common stocks over 139 years after taking into account commissions/fees, inflation, and taxes theres nearly nothing left for the average investor.
The decade of the 1970s was a losing period for equities as an asset class for the retail investor, as was the period from 2000 to 2010. 1910 to 1920 also appears to be a losing period. But the difference to folks who speculated in the markets one hundred years ago or more was that they never believed in long-term investing success or held the belief that the stock market served as a retirement vehicle. The stock market, for most of its history was viewed as a gambling den. And make no mistake, it still is gambling, but theres been a massive PR shift since the early 1980s to convince the public that the stock market represents an important component in retirement planning and affluence.
Institutional investors have made progress in reducing stock market exposure over the last five to ten years after the 2000 to 2002 stock market decline. Pension fund asset levels have not recovered from the stock market exuberance and subsequent decline. No matter who you are youve been fooled.
