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The worst decade ever for stocks.
Old 12-21-2009, 01:05 AM   #1
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The worst decade ever for stocks.

That is what this WSJ article concludes.
Here is the link for those of you with subscription and for the rest
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The U.S. stock market is wrapping up what is likely to be its worst decade ever.
In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s.
Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade.
Worst Decade Ever

See an interactive chart of annual returns, by year and decade


The period has provided a lesson for ordinary Americans who used stocks as their primary way of saving for retirement.
Many investors were lured to the stock market by the bull market that began in the early 1980s and gained force through the 1990s. But coming out of the 1990s, the best calendar decade in history with a 17.6% average annual gain, stocks simply had gotten too expensive. Companies also pared dividends, cutting into investor returns. And in a time of financial panic like 2008, stocks were a terrible place to invest.
With two weeks to go in 2009, the declines since the end of 1999 make the last 10 years the worst calendar decade for stocks going back to the 1820s, when reliable stock market records begin, according to data compiled by Yale University finance professor William Goetzmann. He estimates it would take a 3.6% rise between now and year end for the decade to come in better than the 0.2% decline suffered by stocks during the Depression years of the 1930s.
The past decade also well underperformed other decades with major financial panics, such as in 1907 and 1893.
"The last 10 years have been a nightmare, really poor," for U.S. stocks, said Michele Gambera, chief economist at Ibbotson Associates.
While the overall market trend has been a steady march upward, the last decade is a reminder that stocks can decline over long periods of time, he said.
"It's not frequent, but it can happen," Mr. Gambera said.
To some degree these statistics are a quirk of the calendar, based on when the 10-year period starts and finishes. The 10-year periods ending in 1937 and 1938 were worse than the most recent calendar decade because they capture the full effect of stocks hitting their peak in 1929 and the October crash of that year.
From 2000 through November 2009, investors would have been far better off owning bonds, which posted gains ranging from 5.6% to more than 8% depending on the sector, according to Ibbotson. Gold was the best-performing asset, up 15% a year this decade after losing 3% each year during the 1990s.
This past decade looks even worse when the impact of inflation is considered.
Getty Images CLICK ON IMAGE: Markets during the '80s and '90s were fixated on the cheap and powerful computing power created by Microsoft's Bill Gates. Click on the image to see the annual returns, by decade, for a broad measure of stock-ownership.



Since the end of 1999, the Standard & Poor's 500-stock index has lost an average of 3.3% a year on an inflation-adjusted basis, compared with a 1.8% average annual gain during the 1930s when deflation afflicted the economy, according to data compiled by Charles Jones, finance professor at North Carolina State University. His data use dividend estimates for 2009 and the consumer price index for the 12 months through November.
Even the 1970s, when a bear market was coupled with inflation, wasn't as bad as the most recent period. The S&P 500 lost 1.4% after inflation during that decade.
That is especially disappointing news for investors, considering that a key goal of investing in stocks is to increase money faster than inflation.
"This decade is the big loser," said Mr. Jones.
For investors counting on stocks for retirement plans, the most recent decade means many have fallen behind retirement goals. Many financial plans assume a 10% annual return for stocks over the long term, but over the last 20 years, the S&P 500 is registering 8.2% annual gains.
Should stocks average 10% a year for the next decade, that would lift the 30-year average return to only 8.8%, said North Carolina State's Mr. Jones. It is even worse news for those who started investing in 2000; a 10% return a year would get them up to only 4.4% a year.
There were ways to make money in U.S. stocks during the last decade. But the returns paled in comparison with those posted in the 1990s.
Of the 30 stocks today that comprise the Dow Jones Industrial Average, only 13 are up since the end of 1999, and just two, Caterpillar Inc. and United Technologies Corp., doubled over the 10-year span.
So what went wrong for the U.S. stock market?
For starters, it turned out that the old rules of valuation matter.
"We came into this decade horribly overpriced," said Jeremy Grantham, co-founder of money managers GMO LLC.
In late 1999, the stocks in the S&P 500 were trading at about an all-time high of 44 times earnings, based on Yale professor Robert Shiller's measure, which tracks prices compared with 10-year earnings and adjusts for inflation. That compares with a long-run average of about 16.
Buying at those kinds of values, "you'd better believe you're going to get dismal returns for a considerable chunk of time," said Mr. Grantham, whose firm predicted 10 years ago that the S&P 500 likely would lose nearly 2% a year in the 10 years through 2009.
Despite the woeful returns this decade, stocks today aren't a steal. The S&P is trading at a price-to-earnings ratio of about 20 on Mr. Shiller's measure.
Mr. Grantham thinks U.S. large-cap stocks are about 30% overpriced, which means returns should be about 30% less than their long-term average for the next seven years. That means returns of just 1.6% a year before adding in inflation.
Another hurdle for the stock market has been the decline in dividends that began in the late 1980s.
Over the long term, dividends have played an important role in helping stocks achieve a 9.5% average annual return since 1926. But since that year, the average yield on S&P 500 stocks was roughly 4%. This decade it has averaged about 1.8%, said North Carolina State's Mr. Jones.
That difference "doesn't sound like much," said Mr. Jones, "but you've got to make it up through price appreciation." Unless dividends rise back toward their long-term averages, Mr. Jones thinks investors may need to lower expectations. Rather than the nearly 10% a year that has been the historical average, stocks may be good for only about 7%.
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Old 12-21-2009, 01:46 AM   #2
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Good article. Thanks for posting. One good thing for us that has come out of the dismal stock performance these past years is that it has motivated me to work much harder at my business because that is more of a predictable income source.

For most of our lives we were very aggressive investors in stocks but losses in the past the past year or so and approaching retirement have had us rethinking that strategy.
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Old 12-21-2009, 10:42 AM   #3
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For those of us that got started working towards FIRE (saving/investing) in this "dismal decade," the news is actually refreshing - especially if we have posted gains! Hoping for a better future!
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Old 12-21-2009, 10:46 AM   #4
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Some people would be scared witless by this. I tend to think it's a good contrarian sign for the future.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 12-21-2009, 10:50 AM   #5
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I guess it works if favor of many of us who basically were buying cheap shares throughout that decade.

If it goes up.
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Old 12-21-2009, 10:58 AM   #6
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You'll also notice from that article that the two preceding decades were a couple of the best ever for stocks. We ended 1999 at an all time high PE-10 of 44x, so its not surprising that returns in the decade following were uninspiring. Things are a lot better now than they were in 2000, but valuations are back to 20x, which isn't exactly cheap.
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Old 12-21-2009, 11:04 AM   #7
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Great chart, Clifp.

Ha
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Old 12-21-2009, 11:35 AM   #8
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For those of us who have managed to have success in building a nest egg in spite of this news, this should be encouraging.
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Old 12-21-2009, 11:50 AM   #9
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I think one important takeaway from these charts and market histories is that on both the upside and the downside, emotion tends to exaggerate reality in terms of the market's reflection of economic realities.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 12-21-2009, 12:41 PM   #10
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7% return (3 to 4% real) for equities going forward make TIPS at 2.5 to 3% look good.
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Old 12-21-2009, 01:33 PM   #11
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I guess this has been a good wake up call for us. Reminds me of the importance of diversification and to not count on a positive return all years.
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Old 12-21-2009, 03:54 PM   #12
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I remember very early in the year 2000 (pre-crash) hearing a CNBC interview with Warren Buffett. He said that he sees the 2000-2009 decade as having 6% returns in the stock market at a maximum. Things just won't be as rosy as the previous decade he said. He got the latter part right, but way overestimated what returns would be.

I take slightly negative average annual returns over a decade as a positive sign. It leaves more room to grow. I don't think things are stupid cheap today, but obviously much cheaper than 2000 prices. Who knows, maybe we'll see some "Death of Equities" headlines on the front of Businessweek, Forbes, Money, etc. See some real discounts a la March 2009. Buy me some more cheap investments!!
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Old 12-21-2009, 07:07 PM   #13
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Great article! Three cheers for all of us that have (so far anyway!) managed to start our ER adventure during this decade and are still at it. YMMV, May the force be with us etc etc
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Old 12-21-2009, 07:41 PM   #14
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Thanks for posting that great article ! I knew the last ten years were slow in the stock market but the worst ever . As Dawg would say "I need meds for this info ".
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Old 12-22-2009, 08:00 AM   #15
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Quote:
Originally Posted by Moemg View Post
Thanks for posting that great article ! I knew the last ten years were slow in the stock market but the worst ever . As Dawg would say "I need meds for this info ".
Everyone join me now...........

Living proof that it has not been a good decade.
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Old 12-22-2009, 11:30 AM   #16
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One thought comes to mind after reading that awesome article...PRPFX (or HB's 4 x 25 portfolio). No one knows what is coming next and how long it will last. Bear markets can certainly last longer than your pain threshold (especially in the withdrawal stage). Stay diversified using many asset classes. Just look how Yale and Harvard run their endowments. Holding different types of common stocks is not totally diversified. Mix it up a bit. Hold some stocks, bonds, precious metals, real estate, timber, etc. No, you won't get rich quickly this way but you will get rich slowly this way (I know). Also, your pain threshold is greatly reduced because you don't fear massive drawdowns in your portfolio balance.
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Old 12-22-2009, 02:38 PM   #17
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It's pretty close there, we could in theory have a few really big gain days before Jan 1st and pull into second worst right under the wire.
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Old 12-22-2009, 03:58 PM   #18
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Good Riddance to the 00s. History Suggests Things Will Be Better Over Next Ten Years: Tech Ticker, Yahoo! Finance

Here's an article that suggests the next decade will be much better than the 00's. Not real number heavy for why they think so, but it makes sense, and I'd wager historically a really bad decade was followed by a much better decade. From that link, they also say the 1980's had average annual returns of 16% and the 1990's average annual returns of 17%. However the 00's had avg annual returns of -0.5% and -3% for the Dow and SP500 respectively.

Interesting to note that when you look at the 30 year period from 1980 through 2009, the average annual return ends up being right at 10%.
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Old 12-22-2009, 04:43 PM   #19
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Amusing. Saints are playing a better brand of ball - on average. I stayed retired and my standard of living went way up - all praise to Bogle and being really cheap in the 90's.

I did lose a house aka fish camp(no insurance) and most possessions to Katrina thus saving on moving expenses.

For a retired engineer - numbers are sometimes really amusing.

heh heh heh - balanced index, a few Norwegian widow stocks, benchmark 4% and stay agile, mobile and hostile. .

BTW if we get too good a decade going forward I have to spend more cause I'm not getting any younger and unfortunately I'm already 15 lbs over my 'benchmark' weight.

??Trade my chevy in for a GMC??
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