The Long View on Stocks

Here’s an interesting chart and some stats frmo Merrill Lynch on long run stock market performance.  Now, if we could only solve that whole, not being alive for 189 years, problem…..

  • In the long-run stock prices rise.
  • ƒ $1 invested in US large company stocks in 1824 would be worth roughly $427 today in nominal terms.
  • An even better stat for the bulls: $1 invested in US large company stocks in 1824 would be worth close to $4,225,000 with dividends reinvested, illustrating the power of compounding.
  • The great equity bull markets -ƒ 1860-1872 = 332% total return; –  1920-1928 = 423% total return; ƒ and (the greatest of them all) 1982-1999 = 1654% total return
  • From the March 2009 lows to their all-time high on August 2nd 2013, US large cap stocks have returned 177%.




Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • Bigafromtexas

    And what to say about taxes?

  • Andrea Malagoli

    This is another piece of sensationalist BS statistics that banks keep trying to show in order to renew the faith in equities.

    The reality is that the “long run” for a normal person or pension fund is more like 20 years. Equity returns can vary enormously over any 20 years period.

    This also does not mention the other subtle things that there would not have been an actual investable instrument to implement such a strategy.

    Of course, it would be any bank’s dream to be able to collect 100+ years worth of fess from an investor ….

  • Adam P.

    The daily dose of utterly nonsense from a bunch of ignorant bankers that do not understand the second principle of thermodynamics, the meaning of enthropy and the nature of our world that is not stationary and not ergodic. The statistics computed over a certain period 100 or 50 years ago are related to a world that is very different than our world today. The fact that these ignorants are still so influent is a tombstone on our future. Ignorance and stupidy are at full speed.

  • GT

    Well said Adam.

  • MP

    1824? How many of those are still around today? INDEX goes up but they get recalibrated now and then… Not the same.

  • JC

    The point is to be invested in equities for the long term. You can’t argue that. The rolling 20-year returns do vary significantly, but that is because of tremendous upside during certain periods. Any person saving money for retirement would be foolish to ignore equities.

    Check out piece from Crestmont Research-

  • Merlin R

    The more I ponder this, the more I can’t believe Mr. Roche put this up without critical commentary. Survivorship bias is a real thing that the professionals know about. I’m not surprized to see an asset manager promulgate such a chart, but I am amazed to find it here.

    I mean, how well would your investment in the four largest railroads have done during the late 19th century?

  • Cullen Roche

    My comment about living 189 years was essentially a dismissal of the data. Sorry, I should have been clearer.

  • whatever name I used before…

    “My comment about living 189 years was essentially a dismissal of the data. Sorry, I should have been clearer.”

    Read all about it – “Cullen dismisses data out of hand.”
    (after being filleted for gullibly swallowing everything thrown at him on inflation).

    How about being hoist on your own petard, Cullen?
    Since you demand this of your detractors, I take it that you have _hard data_ to disprove this stuff.
    No? Of course you dont and its ridiculous to ask, isnt it?

    Then please do me the favour of not calling me a ‘troll’ just because I disagree with you. Its bad form, old bean.

    (I’ll put something up on your robots thread later. But I’ve had a beer or two so it wont be tonight. I’d like to hear your opinion on it.)

  • tc

    I got it. That was funny. Some people have no sense of humor.

  • Andrea Malagoli

    Agreed – but what is often foolish is to plan retirement on the expectation of making 9% p.a. on equities. Assuming a 5%-6% long term returns provides for a safer cushion (but also raises the need to save more).

  • Cullen Roche

    Do I need to prove to you that people don’t live for 189 years? :-)

    And no, I don’t demand much from my detractors. Just that they provide evidence and data and try to remain cordial in debate. You can’t seem to do any of the above which is why I refer to you as a troll. I’m here on the internet like a big boy using my real name and using real verifiable data to back up most of my arguments and positions. You, on the other hand, are wearing beer goggles, commenting anonymously and providing no verifiable data. That’s fine and all, but don’t be surprised when people accuse you of trolling when you come here drunk and rambunctious. This website is open for discussion and I gladly provide it, but it is not here so you can stumble around drunk lashing out and anonymously accusing people of being idiots. I doubt you’d do that in real life so why do you behave like this on the internet? It’s just childish. Have some respect. Not just for everyone here, but for yourself.

  • widgetmaker

    “Now, if we could only solve that whole, not being alive for 189 years, problem…..”

    It would also be nice if we could solve that other age old problem – how to time the stock market.

    Can anyone point to an investment advisor who has successfully and consistantly been able to do this?

    It all comes down to history and probabliities. Stocks have shown a remarkable history of gains and have outperformed all other asset classes through the years. The bulk of my wealth is fully invested in stocks, along with a substantial amount in REIT’s, and that is how it is going to stay through the end of time (although I will taper into bonds as I approach retirement to decrease my risk exposure).

    If you ask me, trying to time the market is a fool’s errand. You may get it right a few times, but over a lifetime, good luck.

  • mike

    well said

  • Cullen Roche

    But we’re all market timers to some degree. That’s what I don’t get about the active vs passive thing. Even a supposedly passive approach has timing elements. You’re either dollar cost averaging or lump sum investing or contributing big chunks over time. There is really no such thing as a truly passive investor. That’s just a big myth. Yes, the less frictions we can cause the better off we’ll be (so things like day trading are idiotic), but I think the active vs passive thing gets taken a bit overboard by the Bogleheads at times. The Bogleheads are a lot more active than they let on. In theory they might not be, but in reality they definitely are.

    Don’t get me wrong. I am a HUGE proponent of most of the Bogleheads themes like taking a longer-term perspective, reducing costs, creating an automated approach, diversifying, etc. But I think some perspective is also warranted.

  • Joseph Browning

    I just bought more KO today. I think that in 25 years it’ll be significantly more valuable than it is today. If it’s not, all my efforts in learning how to live in a Mad Max-esque world should pay off…. :-)

  • Widgetmaker

    Are we? I guess it all comes down to definition. To me, market timing is about changing one’s allocation to stocks in anticipation of what one sees on the investing horizon over the near term future. If I think someone should have a 60/40 stock bond allocation based upon their risk profile, and 6 months later they are concerned about the market I ask them what has changed in their personal situation that merits a change. I’m not going to advocate a change based upon market conditions. They are still the same investor, and I would still propose the same allocation. To me, that is passive investing, and I believe that is what will work best in the long run.

    There have been times where I’ve seen people get out before it got worse, but the trick is getting back in. In theory that is a great concept, but the reality is that no one really does it. They sit on the sidelines and wait until “it looks better”, which is usually after a rally they have missed out on. Investments are so often like soap – the more you handle them the smaller they become. I imagine there are some very intelligent people who devote a major part of their lives to following the financial markets and manage to keep up with the indexes, but I don’t see any that are doing much better over time.

    As I said, I have yet to see an investment advisor that consistently outperforms the stock market, by either timing or security selection. That is the myth.

  • whatever name I used before…

    “Do I need to prove to you that people don’t live for 189 years? :-)”

    No Cullen you dont need to prove that.

    But still….you dont have the data and yet you are comfortable with the assertion because it flies in the face of your experience and the experience of most of the people you know; which is sorta the point I was making on your inflation thread….. you dont need data to make an obvious assertion.

    As for your other points “my detractors…. try to remain cordial in debate” – I’m sure most of them do and I appreciate that. I like a reasoned debate.
    But I’m also a complete asshole who can argue to his fingertips without having to hide behind models and theories.
    I might be a dickhead (and you can define that as someone who asks questions, if you want) but I’m _not_ a troll.

    “you can stumble around drunk lashing out and anonymously accusing people of being idiots. I doubt you’d do that in real life ”
    For fucks sake Cullen, dont you get it?
    I am the (approximation of) the drunk in the street, the worker in the plant, the saver in the bank.
    I am the (proxy for) the poor, the old, the sick, the jobless.
    I’m an ignorant dickhead.
    Does that validate you, Cullen?

    People like you look at your TV and think ‘Syria is such a shame’.
    ‘The US army would never fire chemical weapons into Boston’.
    ‘That shit doesnt happen in my world.”
    People like me are angry that people like me are dying in chemical weapon attacks in foreign countries.
    People like me are angry that people like you are lying about nuclear leaks and gold valuations…. and unemployyment… and inflation…..

    Then when some ‘troll’ points out that maybe, just maybe, you _are_ actually the apologist…. you react.
    Tell me you are aware enough, tell me you are alive enough, tell me you are human enough not to plead – in 20 years time – “I only followed orders”, “I didnt kill anyone; I just worked the signals on the train line.”
    “I just typed the shit on the web”.

    Call it hyperbole. Call it trolling. Call it whatever you like.
    But Cullen, dont call yourself ‘innocent’. Dont call yourself ‘independent’.
    And dont _ever_ say ‘nobody told me’.

    Where imagination fails, fear takes root.
    Cullen, if you cant see that the next great conflict – the one between the status quo and a difficult, radical change – is approaching, then you really shouldnt be blogging.

    If you cannot see that radical, transformitive change is required to preserve the advances made in human society, then _you_ are the fool.

    I suggested earlier that I would post on your ‘robot’ thread but I’ll point at the solution here:
    The tax system needs to be radically adjusted.
    We need to drastically reduce taxation on Labour (wages/PAYE/etc) and business (enterprise) and move the burden of healthcare and social services onto the asset holding class (property/land) and capital (transaction taxes/banking).

    Troll that, amigo.

    (Since I’ve put a biblical quote on most of my posts I’ll continue, if only to annoy your flunkies…. Numbers 6:24-26 : ))

  • Cullen Roche

    Well, I can’t criticize you for your honesty. I actually really enjoyed that comment despite its rather crude language. So thanks.

    But I have to ask – what makes you think I am so detached from reality? I’ve never said many of the things you accuse me of having said. And I am well aware of the plight of the middle class. I am not some ultra millionaire living in seclusion having a butler go to the grocery store for me so I don’t have to see the poor vagrants in the “real world”. I am actually a pretty normal guy. I don’t know where this myth comes from that I am some sort of snooty 1%er who turns his nose up at the poor. So what is it that gives you that impression?

  • Benjamin Cole

    Well I enjoyed this post—btw there are huge permanent investors in the USA, such as pension funds. So the chart is meaningful. ..seems to verify EMT as equities are riskier…

  • Richard from Canada

    And how many companies are still solvent from 189 year ago ? How many DOW index stocks are solvent from 50 years ago ? You need to pick stocks which grow during your life time … those that catch your personal economic cycle on planet earth !

  • Andrew P

    No you don’t have to pick stocks. If you invest in the index, when a stock is dropped from the index it is also dropped from your portfolio. Of course, there was no automatic way of investing the index 189 years ago. There is now.

    Now, if your investing lifetime just by chance happens to be on a bad stretch where the market returns little, that is just bad luck. And if human lifetimes are extended beyond current limits, it would probably change the timescales of the entire investing world as well.

    And if you could live for 200 years, you would probably run into very bad episodes in future history where your assets were confiscated, etc.. Just imagine that you were a US gold speculator in 1932 or that you were any kind of investor in China prior to the Cultural Revolution, or that you were a German Citizen with a big pile of loot in 1945, or a Russian with anything in 1917. There were episodes in history where you cannot keep anything you have. If you could somehow jump over future versions of these with a time machine and somehow carry all your loot…..

  • Johnny Evers

    Good points.
    Best to be passive in your investment style (index funds, pick your asset allocation and stick to it, dollar cost average your investments) …
    and active at the critical turning points, if possible — for example, my grandparents chose to emigrate to the U.S. (possible luck, certain degree of good judgement.)
    It’s interesting that Europeans, who have seen far more largely unavoidable systemetic and political risk of the type you mention in their history, have chose to ‘invest’ more in collective solutions — tying their countries together in monetary and political unions, providing retirement and medical safety nets — than Americans.
    How do you ‘jump over’ those catastrophic events — with luck, first of all, and second by investing in your own skills and networks. I suspect that many wealthy Germans who were wiped out by 1945, rallied to become wealthy again.

  • Conscience of a Conservative

    The problem with this logic, is that the companies at the beginning of the measured time-span basically don’t exist anymore. The investor who buys individual stocks would need to efficiently swap out of failing businesses and invest in new ones. The index has the benefit of survivorship bias.

  • Boston Larry

    How about 1.7% annualized return over 13 years? Must be talking about bonds, right? No, that is the performance of the S & P 500 over the 13 years from year-end 1999 thru yearend 2012. Source: latest issue of Barron’s, and I quote: ”
    Cumberland has delivered solid performance. Since its inception at the end of 1999 through last year, a composite of the firm’s U.S. stock accounts, which are invested solely in exchange-traded funds, was up 2.5%, net of all charges, versus 1.7% [annualized] for the S&P 500, on a total-return basis. So the 21st century is certainly starting off a lot weaker for US stocks than the last 20 yrs of the 20th. Some argue that stock options and executive compensation has increased to such high levels lately that the executives have lowered the return that will be left to investors compared to the past, when executive comp was far lower. See:

  • Shorehaven

    The Dow Jones components (1925)
    (1925 was picked out of random)

    Allied Chemical
    American Can
    American Car and Foundry
    American Locomotive
    American Smelting
    American Sugar
    American Tobacco
    General Electric
    General Motors
    International Harvestor
    Mack Trucks
    Paramount Famous Lesky
    Texas Company
    US Rubber
    US Steel
    Western Union

    Had you bet on these stocks against gold, to quote Warner Wolf, “You lose!”.

  • Shorehaven

    Here are the 12 Dow Jones components of 1898.

    American Cotton Oil
    American Spirits Manufacturing
    American Sugar
    American Tobacco
    Laclede Gas
    National Lead
    Pacific Mail Steamship
    Peoples Gas
    Standard Rope and Twine
    Tennessee Coal Iron and Railroad
    US Leather (preferred)
    US Rubber

    Once again had you bet on these stocks against gold, to quote Warner Wolf, “you lost!”.