Update: A Generational Opportunity

Categories Author: Jim O'Shaughnessy, Investing, U.S.

“We’ve got the secret sauce. It doesn’t work all the time perfectly, but you just look at where we go, milestone after milestone:
Never bet against America.”

— Warren Buffett (Jan. 19, 2017)1

Every time I feel short-term pain, I review the long-term data — going all the way back to 1871 in this case — and it helps me focus on the stock market’s long-term potential. 

The table below is 100% up-to-date. Some production notes:

  • Why are “real” returns important?
    Because inflation and other noise gets stripped out and the results synchronize across the various time periods.
  • Why 10-years?
    These days, that’s the longest you can expect even the most disciplined investors to stay their course — though that timespan continually seems to be shrinking.

50 Lowest 10-Year Real Returns & Bounce Backs*
(1871 to Present)2
table* After history’s 50 worst 10-year periods, 181 out of 189 subsequent returns
have been positive — a 96% base rate.

As I said in 2009,3 this was “perhaps a once-in-a-lifetime gift, and you should do your best to open and make maximum contributions to your 401(k)s and other tax-advantaged plans. For middle-aged investors like myself, I recommend increasing the equity allocation of your portfolio to — and consistently move money into — stocks. And, for investors who are already retired: increase your allocation to stocks, particularly if you are significantly overweight bonds. If you are 70 years old, a robust portfolio will help you enjoy your remaining years more fully. I recommend working with your advisor/consultant to see what would be right for you.

“Like Warren Buffet, I believe that you will never make money betting against the U.S. over the long term. In every great challenge this country has faced, it has emerged stronger, more vibrant, and ready to face the future. I believe that this time will be no different.

“We are talking about an event so rare that most of us alive today will never see such an opportunity again.”

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  1. See http://www.cnbc.com/2017/01/20/warren-buffett-says-the-us-will-do-fine-under-trump-because-weve-got-the-secret-sauce.html
  2. Source: Goetzmann NYSE price-weighted index (1871–1925), S&P 500 Total Return Index (1926–Present), Sahr inflation estimates (1871–1912), U.S. Bureau of Labor Statistics Consumer Price Index (1912–Present)
  3. See “A Generational Opportunity” (osamlibrary.com, March 2009).