
Source: Pieter Slegers
Here are 15 things I learned from 120 years of stock market history:
Lesson 1: Invest for the long term. In the short run, stock returns can be very volatile, but they are very robust in the long run.
Lesson 2: On average, you double your money in the stock market every 10 years.
Lesson 3: In the long run, stocks are less risky than bonds. For 20-year holding periods, stock returns have never fallen below inflation.
Lesson 4: Don’t try to time the market. Time in the market is way more important than timing the market.
Lesson 5: Our world continuously changes. Avoid companies who are highly exposed to rapid changing industry dynamics. Lesson
6: This time it’s not different. History doesn't repeat itself. But it often rhymes.
Lesson 7: Let your winners run. Selling your winners and holding your losers is like cutting the flowers and watering the weeds.
Lesson 8: Low stock prices are great for investors.
Lesson 9: Invest in companies that translate most earnings into free cash flow. Earnings are an opinion, cash is a fact.
Lesson 10: In the long term stock prices always follow earnings growth.
Lesson 11: Look at the equity premium. Over the past 200 years, the equity premium (the spread between the return of stocks and return of government bonds) has averaged between 3% and 3.5%.
Lesson 12: In general, small cap stocks outperform. Smaller stocks generate a higher return on the stock market. Between 1926 and 2006, the smallest decile stocks compounded at a CAGR of 14.0% compared to 10.3% for the S&P500.
Lesson 13: Cheaper stocks outperform the market. Based on the price-earnings ratio, the 20% cheapest stocks outperformed the S&P500 by 3.2% between 1957 and 2006.
Lesson 14: Do not invest in IPOs. From 1968 through 2000, a buy-and-hold strategy on IPOs underperformed the index in 29 out of 33 years that were studied.
Lesson 15: The stock market is a leading indicator for the economy. On average, the lead time between what happens on the stock market and what happens in our economy is equal to 6 months.