Thursday, December 18, 2008

Record Low Returns for U.S. Large Cap Stocks

According to this chart, at the end of September the ten year return on U.S. large cap stocks was as low as it had been only four times before:



And now the return is negative.

But I'm a bit puzzled - how could the 10 year average return in 1932 be so high?



Clearly the Dow was lower than in 1922 then and even with a 5% + dividend yield it's hard to see how the returns could have been as high as shown on the chart above? This chart from Jeremy Siegel also shows what appear to be positive returns in that period, though not as high maybe?



Perhaps the explanation is that by the end of 1932 stock prices had risen around 50% from the bottom which occurred in July (see Yahoo historical data which start in 1928 unfortunately) and Goetzmann's data are annual year end numbers? But at the end of 1922 the Dow was just below 100 and at the end of 1932 at 60. A negative 5% yield. Did dividend yields average more than 10% over this period? If we use annual averages for 1922 and 1932 (about 80 and 64 respectively) we might be getting close to Goetzmann's supposed numbers but the dividend yield still doesn't seem high enough:



Conclusion, the Dow could have shown positive 10 year returns in 1932 but probably not as high as shown in the first chart in this post.

1 comment:

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