Today
I got to review the historical data for financial returns for various commonly
used indices: S&P 500, 3-month bills and 10-year T-bonds. Thanks to
data/analysis from @AswathDamodaran, we can easily look at this situation. See data at http://people.stern.nyu.edu/adamodar/pc/datasets/histretSP.xls
$100 invested in
1928 in various instruments would have grown as show in the chart below.
Everyone ones that the stocks suffered a big setback in 1929-1933 which almost
reduced the total stock value to nearly 10% of the original amount. And it took
almost till 1936 to get back to original place only to fall again to reach back
value in 1944. Starting n 1955, the stocks had a great continuous run up …
perhaps tracking the post-world war 2 generation.
Recent performances
in S&P 500 are noteworthy and cyclic. The stocks raised to great peaks in
1999, 2008, and are still raising now in 2014. Each time the stocks seem to
reach new heights defying expectations from many folks. Plainly looking at the
graphs it seems that the cycle frequencies are increasing with the time spent
in the downtime also decreasing. Is that an indication of continuous optimism
or constant shifting in S&P 500 mix? I do not know. Nonetheless, it is
fascinating to see that stock returns significantly outpaced the short and long
term bond investing. It almost seems that we are encouraged to take risks! And
let us do that with eyes wide open.
Again thanks to Aswath Damodaran for data. I
am going to learn more from him in the coming days.
No comments:
Post a Comment