Posted: 12/20/2009 12:54:03 PM EDT
DECEMBER 20, 2009, 4:00 P.M. ET
WALL ST JOURNAL
By TOM LAURICELLA
For many stock investors, this decade can't end soon enough.
Even with the rebound this year, the U.S. stock market is on the verge
of posting its worst performance for any calendar decade in nearly 200
years of American stock-market history.
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
In the process, the market has provided a lesson for ordinary Americans
who used stocks as the primary way of saving for retirement.
Many investors were lured to stocks by the big 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
absolute financial panic like 2008, stocks usually were the worst place
With just 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 all
the way back to the 1820s, when reliable stock-market records began,
according to data compiled by Yale University finance professor William
It edges out the 0.2% decline stocks suffered during the Depression
years of the 1930s, which up until now held the title of worst decade.
And it is worse than other decades with 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.
Then again, if stocks this past year hadn't staged a rebound since
March, this decade's losses would have eclipsed even the worst of the
1930s, according to Mr. Goetzmann's data.
From 2000 through 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
This past decade looks even worse when the impact of inflation is
considered. Since 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, in which a bear market was coupled with inflation,
wasn't as bad as the most recent period. The 1970s saw the S&P 500
lose 1.4% after inflation.
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 up 8.2%.
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 somebody 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 postedin the 1990s.
Of the 30 stocks that comprise the Dow Jones Industrial Average today,
only 13 are up since the end of 1999, and just two, Caterpillar Inc.
and United Technologies Corp., doubled over the 10-year span. In
contrast, during the 1990s every single one of the stocks now in the
Dow doubled and 22 more than tripled. (Dow component Kraft Foods Inc.
started trading only in 2001 and Cisco Systems Inc. in March 1990.)
It was more than just technology phenomena such as Microsoft Corp. and
Intel Corp. Coca-Cola Co. rose more than 500% in the 1990s. Today, the
stock is up 1.4% from where it finished on Dec. 31, 1999.
This decade, many of the winners were energy companies. Within the
S&P 500, the sector is up about 145%, with stocks such Chevron
Corp. up 79% and Exxon Mobil Corp. up 72%. Consumer staples are up 67%,
and utilities have risen 63%. So what went wrong for the U.S. stock
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
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.
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 ininflation.
Another big 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 has been roughly 4%. This
decade it has averaged about 1.8%, said North Carolina State's Mr.
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 7%.
Yale's Mr. Goetzmann said the ebb and flow of ordinary investors from
stocks may have contributed to this decade's poor performance, as well.
During the 1990s, the growth of 401(k) plans and the Internet boom
brought a wave of new money into the stock market that helped drive
prices higher, he said. It was a similar story in the 1920s with the
boom in closed-end mutual funds.
Then, starting with the collapse of the tech-stock bubble, "people fell
out of love with the stock market…and fell in love with investing in
their own home," Mr. Goetzmann said.
On a long enough timeline, the survival rate for everyone drops to zero.
tag for later
Originally Posted By ar10er:
"We came into this decade horribly overpriced," said Jeremy Grantham
No fucking kidding.
Only if you invested ALL your money in 1999. For those that DCA or actively manage their investments, they have done well for the most part. I have.
In before someone says to buy gold....
Or you could have invested in 2002 @ 7700 and watched it rise to 14000 in 2007.
Its all about the time frame.
Wait until the baby-boomers officially begin to retire and their paychecks aren't automatically buying artificially inflated stocks.
...next few years should be fun
Originally Posted By sbenedini:
In before someone says to buy gold....
buy silver, better investment overall
..but buy gold, copper jacketed lead, etc.
I don't guess we should blame Bill Clinton and the regs that Bush did NOT do away with. Obama is an Idiot.
If Social Security had been privatized, stocks would be doing much better now.