I'd like to be optimistic, but in surfing, I found this (a blog by someone who is admittedly quite a bear):
Fred's Intelligent Bear Site - Inflation Adjusted DJIA
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They say "the market always goes up in the long term," but at an average return of 1.9% per year, it can take many years to recover from a large decline. The peak in 1929 was not ultimately exceeded until 1992. When the market touched the bottom of the channel in 1982, its value was about equal to the value at the beginning of the chart in 1910.
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Can anyone comment on this? The guy is making sense to me, even though he is quite the bearish contrarian. But it goes against everyone I've read and against most of what people on here think....
Many years ago, I was perplexed by the apparent contradiction between the assertion that historical stock return being 9-10% annual and some stock charts showing the DOW being flat for decades. Somebody is obviously lying, or very mistaken.
I was relieved to find the answer in a book, entitled "How to buy stocks" by Louis Engel and Brendan Boyd. It described an effort by the Center of Research in Security Prices at the Graduate School of Business of the University of Chicago. This endeavor was to compile stock prices and dividend payout of ALL stocks that have been listed since 1926, prior to the Great Crash. Note my capitalization of ALL stocks. They tracked down all stocks that were ever listed, including ones that had been merged or delisted or gone bankrupt.
This effort started in 1958, took 5 years, and cost $250K back then. Remember that then, historical records were not available on computer for easy retrieval and dissemination as we take for granted now. This work was continued at least until 1980, the most recent date quoted in this book (edition 1983).
The following quote from page 257 of this book will answer TM's question.
"Probably the most significant figure in the table is that 9.9% at the bottom of the first column. That figure means that an investment of an equal amount of money in each of all the Big Board stocks on December 31, 1925 would by December 31, 1980, with the reinvestment of dividends, have yielded a return equal to 9.9% interest per annum compounded annually".
Now, I looked at the chart at the Web link provided by TM. Right in the center of the chart is the caveat "Excluding Dividends". Right there is the cause of the disconnect between charts like this, and the results from the University of Chicago study. People may not appreciate the fact that until recent times, stocks paid lots of dividends, sometimes as high as 10% annual, with an average of around 6% until 1950. Exclude them, and you can spin another story out of the same data. See attached links that illustrate the dividend yield.
Political Calculations: The History of S&P 500 Dividends in Pictures
Bespoke Investment Group: Historical Dividend Yield of the S&P 500: 1925-Present
I think one of the causes of the modern-day low dividend yield was the tax policy that favored capital gains over dividend, up until recently. Companies and its shareholders prefer retention of the earnings to grow the business instead of paying out. The dark side of that is of course flim-flam book-keeping practices, and the squandering of earnings on dubious "investments" such as dot-coms and take-overs.
Before I close, I must include another sentence from the above book that relates to the OP question, "length of time to recover lost money".
"The longest span of years showing losses is the 14-year period from 1928 to 1942." p.257.
And here is a lucrative (and elusive) goal for market timers who want to get in at the bottom:
"If you had bought in 1932, there was never a year in which you would not have realized a profit of at least 10% - usually much more - until 1974".
By the way, I believe all these numbers were before inflation. If I find out differently, I will post a follow-up.
The problem with relying on historical data is that there is no guarantee that history will repeat exactly the same way. I have just finished reading "Fooled by Randomness" and "The Black Swan" by Nassim Taleb, which are long overdue on my reading list. The gist is (my words) "No one knows, and those who claim to know either knowingly lie or are full of it". His books make you think!
PS. Taleb said the current liquidity crisis is a white swan, meaning its occurence is doomed to occur by the action of the culprit bankers and those in the know. I did not find out what his thinking is about the "outcome", meaning the effect on the economy and the stock recovery. I think he would shrug and said "I dunno".