in dollar terms the markets fully recovered from the great depression in just 4-1/2 years .
dividends were running 18% and were not included in calculations .
the cpi fell 18% meaning you needed 18% less in real return . no different than looking at real returns if inflation was soaring , it is just the reverse .
many stocks that were popular were doing very well and were not in the index's yet , ibm being one of them .
by the time you reached the same nominal level you were sooooo far a head of where you were pre great depression in real return
The reason we speak of the DJIA today is that it survived the great depression, it was created in 1929. Most investment were not in Dow stocks, the most popular and considered safe investments of 1929 were real estate and banking stocks. The banking stocks had a double liability thought to make them more secure if the investors knew not only was their investment at stake but another 100% of the investment as well.
A common practice during the great depression was to level investment buildings because the real estate expenses continued while the renters were unable to pay rent. People with the most money in the great depression got wiped out.
Additionally most banks stopped allowing people to withdraw funds from their accounts, leading to sales of passbooks at 60 cents on the dollar in order to have money to spend.
The people that held on and did well was not any of the average investors and to imply that the population as a whole was ignorant is just wrong, they had beliefs the current wisdom of their day held that real estate, rental properties and a few banking stocks were the recipe to wealth. Only 3 percent of the US population actually owned stocks in 1929. Most of them were the wealthier portion of Americans and would have owned banks, which over time forced them to sell assets at any price to meet the liabilities they owned. This is why in 1931 -1932 the market just kept plunging as wealthy people had no choice but to sell their stocks because of their debts.
To apply modern portfolio theory and expected returns based on a time where 97% of people didn't even hold stocks and a large class of stocks held a double liability that is not reflected in actual returns is interesting to me.
If one knew a product was going to go from 3% of the population insisting on owning it to 50% of the population what would be the expected valuation of that product? You expect it to go up, to then transform that data into a long time continuum of expected returns is merely returning to what the average American thought in 1929 when 50% owned their house even though the 30 year mortgage didn't exist. Primary mortgages were considered safe and were only offered for 50% of the home value and still 50% owned their homes, that is where their wealth went, however it became common to take on second and third mortgages for up to 80% of the value of housing. It is for this reason in 2009 that the Fed, which had claimed housing prices could not possibly decline decided to aggressively buy all that debt to hold up the price of an over mortgaged asset class. It is an interesting experiment that 8 years later is 1/2 over.
With the stock market decline from 1929 - 1932 all the bankers and financiers became rolled up in the same problem. It is because there were so few people owning stocks that it became easy for politicians and the populace to blame the depression on stock market manipulation when in reality it was just a mass delusion on the part of bankers that collapsed the financing mechanism of the country. Most stocks ceased paying dividends, stocks that survived and paid dividends came to be known as DJIA stocks, the S&P500 etc, at the time no one thought they were safe the 3% ownership rate which fell to 1 percent at the nadir to 50% is why you now get 2 percent dividends instead of 9 percent and count on capital gains as a reliable source of income for the future
What can one expect in returns? Assuming no crash you have the dividend rate and the long term growth of the economy it seems to me, probably 2 percent over inflation for the long run for common stocks with Bonds returning less than inflation. A 50/50 portfolio will probably average 1 percent over inflation for the long run from this price point in my thinking.
My strict logical head never did like that thinking...
