In the 1990's the New York Stock Exchange-where the stocks of about 3,000 companies are traded among investors each day- had its longest "bull market" (a period of rising stock prices) in its history. The NASDAQ-where the stocks of approximately 3,300 companies are traded- also experienced record performance. Following a sustained period of rapid  stocks/shares value growth, it takes time during the downturn for memories of disappearing paper profits and high profile corporate failures, to fade. So the scenario for the foreseeable future is unspectacular average equity returns growth compared with successive years in the 1990’s of double-digit growth. However, some sectors and regions will continue to outperform others. In a long period down/bear market, there are always periods of growth. So the timing of stock market investment is important. The last protracted bear market (period of falling prices) in US equities started in February 1966 and lasted until August 1982. The Dow Jones index value in February 1966 was 995 and 16 years later it stood at 777. So any investor who stayed fully invested in an average portfolio of shares in this period lost 22%. Yet over this time span there were four periods in which equities experienced strong rallies which boosted the Dow by 32%, 66%, 76% and 38% respectively. 

According to Stocks, Bonds, Bills and Inflation 2000 Yearbook, © 2000 Ibbotson Associates, Inc., while returns grew by an 11% average in the period 1926-1999, in the 5 year period 1972-1977, the stock market lost an average of 0.2% per annum.

According to a University of Michigan study, an investor who stayed in the US stock market during the entire 30-year period from 1963 to 1993-7,802 trading days-would have had an average annual return of 11.83 %. However, if the investor missed the 90 best days while trying to time the market, the average return would have fallen to 3.28% per annum.

According to  Dr. Bryan Taylor of Global Financial Data, analysis of US bull and bear markets in the past has always used the S&P Composite Price Index, not the Total Return Index. Since most investors have their money in funds that reinvest their dividends, using a price index to determine the movement of markets does not reflect the results that investors receive. Over time, price indices produce dramatically different results from return indices. The 1920s bull market peaked on September 7, 1929. If someone had invested their money in the stock market on September 7, 1929, it would have taken until September 1954 to break even using the price index benchmark but on a total return basis (allowing for dividends), the investor would have broken even nine years earlier, in 1945. Total returns reduce the size of the falls in a bear market and increase the returns in a bull market.

Global Investment Returns Yearbook 2007

The Global Investment Returns Yearbook (originally known as The Millennium Book) was launched in 2000. It is produced by London Business School experts Elroy Dimson, Paul Marsh and Mike Staunton in conjunction with ABN AMRO. ABN AMRO distributes the Yearbook to investment professionals and London Business School makes it available to other users

Figure 5: Real returns on equities and bonds internationally, 1900-2007

Large scale chart of Figure 5 plus more charts and information in a Synopsis of the 2007 Report

There are opportunities for long-term investors to outperform when the market takes a short-term view on risk, says ABN AMRO / London Business School study.

For long-term investors, protecting portfolios against short-term losses is counterproductive and downside protection hurts performance disproportionately, according to the authors of the ABN AMRO Global Investment Returns Yearbook 2007. ABN AMRO is a leading Dutch bank.

Returns 1900-2006

Figure 5 shows that out of the 17 GIRY countries, the best performing equity markets over the very long term are Sweden and Australia, with annualised percentage real returns since 1900 of 7.9% and 7.8%, respectively, compared to a world average of 5.8%. Ireland had a real annual return of 5%

The core of the Yearbook is provided by a long-run study covering 107 years of investment since 1900 in all the main asset categories in Australia, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, South Africa, Spain, Sweden, Switzerland, the United Kingdom, and the United States. These markets today make up over 92% of world equity market capitalisation. With the unrivalled quality and breadth of its database, the Yearbook has established itself as the global authority on long-run stock, bond, bill and foreign exchange performance.

Annual Equity Returns 1900-2006: Irish Shares real return at 5% - In UK, largest 20 stocks now account for almost half the market’s value

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DOW JONES INDUSTRIAL AVERAGE MILESTONES

The Dow Jones Industrials Average is based on 30 stocks of leading companies and represents about 25% of the New York Stock Exchange market capitalisation. The S&P Composite represents about 75% of the market’s capitalisation.

Click for DJIA Jan 12, 1906 to date + record declines