dbr wrote:Looking at a long term price chart of the S&P 500, for which such data exists, might lend perspective to the inevitability of "crashes" and downturns and various other thoughts about what the stock market does.
Good point. But here's a long-term chart that terrifies me: http://www.macrotrends.net/2324/sp-500- ... chart-data
Granted, this chart ignores dividends - which until recently were a huge component of cumulative annual returns. But stipulating that, the message of this chart is that from the late 1920s through the market's nadir of 1982, the inflation-adjusted rate of return has been... zero! In other words, for all of their gyrations and reversals, bull markets and bear markets, American stocks have been a good inflation-hedge for a period of 50+ years - but have done no better than that!
Then came the halcyon time of the 1980s and 1990s, when the stock market burgeoned. Today, so much of our intuition about compound-returns, about geometric progressions and the value of time-in-the-market, is rooted in the experience of the 1980s and 1990s. But in the bigger picture, that time was unusually good... just as, thus far, the 21st century has been unusually bad.
Indeed, I'd argue that the real stressor isn't the flash-crashes and the sporadic 10% declines that we've had every few months over the past two years; it isn't even the Great Recession and the crash of 2007-2009. It isn't Taleb's "black swans". No, the real problem is that crashes and corrections have been coming only on the heals of bare minimum recoveries. They haven't followed strong increases to fresh highs. We've not had enough good white swans.
Look at where we are today, vs the year 2000... not just in the American stock market, but overseas, and especially in Europe. There's little cause thus far to be ebulliently proud of the 21st century. Maybe subsequent decades will treat us more handsomely, and even a 17-year-period is just "noise". Maybe. But tell that to investors in the mid 1920s, and again to their grandchildren in 1982.