longinvest wrote: ↑Mon Dec 23, 2013 9:01 am
Such charts are very misleading. As the chart starts on a specific date, it hides future differences. The same chart started in 1929 would show a different picture of stocks and bonds, for example.
Yep. I've been fooled by such charts in the past.
And they are also misleading because of lower and lower data quality as you go farther back, and because of the impossibility of comparing "the stock market" of 1850 with that of today. That's a version of Jeremy Siegel's chart, and Jason Zweig has attacked it in an article, Does Stock-Market Data Really Go Back 200 Years?
. He is particularly skeptical about pre-1870 data, for good reason. One issue is dividend data, which is much harder to find than price data, and according to Zweig it is basically an estimate or guess, and in one book Siegel estimated it at 5.0% and in a later edition he'd changed that to 6.4%. Also according to Zweig--well, read the article.
The chapter on "Stock Market Returns from 1815-2014" in the 2015 Ibbotson SBBI Classic Yearbook says:
While we firmly believe that a 1926 starting data was approximately when quality financial data came into existence, our hope is that the continuing development of these [older] data sets will allow modern researchers ... to test a broad range of hypothesis... as well as open up new areas for more accurate analysis.
The earliest data in their set comes from a publication entitled The New York Shipping List
, which in itself is a strong indication that the stock market wasn't very important and wasn't getting the careful attention it does today!
From 1870 to 1937 the usual source of data is the Cowles Commission report, "Common-Stock Indexes, 1871-1937." This is a full-sized book and a major piece of work, very obviously as serious and comprehensive as they could make it, with a great deal of detail on how they obtained their data. I started a thread on Reliability of stock data prior to 1939?
about it. It seems like pretty data but it has some interesting issues. One is that regional exchanges were important in that era. The Cowles report estimates that they included about 90% of the stocks on the NYSE, but that the NYSE only accounted for about 67% of the total volume on "the 24 most important exchanges in the country." Thus, less than 2/3rds of "the US stock market." Even more important, about 1/6th of the stock market was "the curb exchange," which eventually became the AMEX. Cowles omitted it because the newspaper that published that data literally put a warning label on it:
he reason... is indicated by the following statement regularly carried by the Commercial and Financial Chronicle at the head of the Curb quotations prior to December 1920: "It should be understood that no such reliability attaches to transactions on the "Curb" as to those on the regularly organized stock exchanges... it is out of the question for anyone to vouch for the absolute trustworthiness of the record of "Curb" transactions, and we give it for what it may be worth." Frauds practiced on the New York Curb were so severely criticized in the report of the Hughes Commission in 1909 that organization was begun for the purpose of reform.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.