A Brief History of Stock Investing

A Brief History of Stock Investing

Long-term returns of stocks

Why the 1920s roared

How far did stocks drop in the 1930s

When was the best bull market for stocks?

Market cycles

The "Nifty Fifty" stocks

Long-term returns of stocks

Over the past 70 years, stocks have returned an average of about 10 percent annually

Over the past 15 years, returns have been much better - about 15 percent annually

On an after-inflation and after-tax basis, stocks have been the best investment

Only stocks have beaten inflation and taxes

Bonds and money market accounts have given negative returns after inflation and taxes

Why the 1920s roared

Stocks rose in the 1920s as interest rates fell

Interest rates were high because of the inflationary effects of World War I

Stocks also rose because of excessive buying on margin

In the late 1920s, you could buy stocks with a down payment of only 10 percent of the stock's current price

How far did stocks drop in the 1930s

The drop in the stock market from the 1929 high to the 1932 low was unprecedented

The Dow Jones industrial average lost over 90 percent of it's value

Blue chip stocks like AT&T dropped 75 percent, GE dropped 98 percent

When was the best bull market for stocks?

Howwever, the best bull market occurred between 1932 and 1937 when stocks rose over 370 percent

The second best bull market was the 1982 to 1987 run which resulted in a 250 percent gain

Stocks were very volatile in the 1930s

Market cycles

Over the past 100 years the average market cycle has lasted about four years

The market is generally down sharply in one year and then up for the next three years

The average downturn results in a 35 percent loss, but the longer uplegs result in a 100 percent gain

The "Nifty Fifty" stocks

A group of fifty growth stocks popular in the early 1970s

Included great growth companies like Xerox, Polaroid and Avon

These were also called the "one decision" stocks

You only had to make the decision to buy them; you never had to sell them

These companies were growing at a good rate, but you can pay too much for growth

The Nifty Fifty soon turned into the Nasty Fifty during the 1973-74 bear market

Stock price-earnings ratios dropped from about 16 in the late 1960s and early 1970s to about 6 by 1979

Price-earnings ratios (P/E ratios) measure the relative attractiveness of stocks