120 Years of stock market history in one chart

by finandlife10/06/2024 08:32

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.


Economics | StoriesofLife


I am currently serving as an Investment Manager at Vietcap Securities JSC, leveraging 16 years of experience in investment analysis. My journey began as a junior analyst at a fund in 2007, allowing me to cultivate a profound understanding of Vietnam's macroeconomics, conduct meticulous equity research, and actively pursue lucrative investment opportunities. Furthermore, I hold the position of Head of Derivatives, equipped with extensive knowledge and expertise in derivatives, ETFs, and CWs.


To document my insights and share personal perspectives, I maintain a private blog where I store valuable information. However, it is essential to acknowledge that the content provided on my blog is solely based on my own opinions and does not carry a guarantee of certainty. Consequently, I cannot assume responsibility for any trading or investing activities carried out based on the information shared. Nonetheless, I wholeheartedly welcome any questions or inquiries you may have. You can contact me via email at thuong.huynhngoc@gmail.com.


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