GFD Guide to Total Returns: Market History - and Future?

by: M F

The markets are closed and I am outta here for some fish tacos, some beach, some surf, and some bbqing. If you need some weekend reading, here goes...

This post below reminds me of Question #2 from Fisher's book:

"What can you fathom that others find unfathomable?"

Really interesting piece on market history from GFD Guide to Total Returns. From the doc:

"These facts allow us to make several general statements about investing in financial assets during the 1800s:

1. Most people invested in bonds, not stocks
2. Virtually all of an equity investor’s returns came in the form of dividends, not capital gains
3. There was little difference in the returns to stocks and bonds
4. Since the government did not issue treasury bills and deposits were not federally insured, there was no “risk free” investment available to investors
5. Bond and dividend yields declined over the course of the century as the risk to investors and inflation declined.
6. Although prices rose and fell in any given year, from 1815 to 1914, there was no overall inflation in the US and in most countries on the Gold Standard.

What is interesting about these points, which would have been taken as given before 1914, is that during the 20th Century none of these assumptions proved to be true. By the end of the 20th Century, most investors were investing in stocks, not bonds, depended on capital gains, not dividends, received a large premium on stocks over bonds, had risk-free investment alternatives, saw interest rates rise during most of the 20th Century, and suffered from the worst inflation in human history.

This makes us wonder how reliable the assumptions that investor make today will be for the next 100 years. Will everything that we assume to be true about investing today prove to be false by the end of the 21st Century, and why was it that the rules for investors changed so radically over the course of the 20th Century?"

Without poaching too much from the site, a few more great quotes from Ten Lessons for the Twenty-first Century Investor by Dr. Bryan Taylor:

In the 1970s, when Asian markets were emerging, they also displayed these volatile tendencies. The Hang Seng index rose 880% between 1971 and February of 1973, only to collapse 91% by the end of 1974. Poland, Russia and other stock markets went through similar bubbles and crashes when they emerged from Communist rule in the 1990s. Market timing is everything in these markets.

You know I agree with him on the market timing comment.

If you could imagine how the 21st Century will be different, what would you speculate? Leave a comment. . .