No. of Recommendations: 7
I am now slowly reading the book, “The intelligent Investor”, by Benjamin Graham. He is the inventor of value investing, and Warren Buffet was one of his students.

This book was written in 1973, but the lessons in it are timeless.

One thing that came up is although we can say, that stocks have returned 9% per year from 1929 till now, what they don’t tell you, is there are long periods where it returns much more than that, and long periods where it returns much less.

I am going to try and show some periods.

Now, note that I don’t think his rates include dividend reinvestment, but they also don’t include inflation. Inflation for the last 40 years averaged 3.22%, and dividends, for the period he studied were about the same, so I am going to consider that a wash.

From 1900 until 1924, the real rate of growth for stocks in the US was 3%. That means, the after inflation rate.
From 1924 until 1949, the real rate of growth was 1.5%.

From, 1949 to 1968, the real rate of growth in the stock market was 11%.

I will add in a few more periods, that I know myself. From 1966 – 1982, after inflation, which was very high during that period, you actually lost a lot of money. After taking into account inflation, I have heard it argued that it was worse than the great depression.

From 1982 – 2000, inflation was low, so the real rate of return was about 18% per year compounded.
Finally, from 1999 – 2009, for the s and p 500, the returns were negative.

First, I will admit, that these numbers are my guess. I have not calculated them using exact inflation numbers, and exact dividend numbers, but I think the numbers are close.

More to the point, what this shows is that there are long secular bull markets, and long secular bear markets. Put another way, someone who did 5% worse than the market from 1982 – 2000, would do much better than someone who beat the market by 5% per year from 1966 – 1982.

The moral of the story is that success in the stock market is more due to when you are investing, than how good you are.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.