Wednesday, April 29, 2009

Depression Equity Returns... Not So Bad

NY Times details:

Historical stock charts seem to show that it took more than 25 years for the market to recover from the 1929 crash — a dismal statistic that has been brought to investors’ attention many times in the current downturn.

But a careful analysis of the record shows that the picture is more complex and, ultimately, far less daunting: An investor who invested a lump sum in the average stock at the market’s 1929 high would have been back to a break-even by late 1936 — less than four and a half years after the mid-1932 market low.

How can this be? Three factors have obscured this truth from investors: deflation, dividends and the distinction between the Dow Jones industrial average and the overall stock market.

Source: Irrational Exuberance

1 comment:

  1. This is silly. When you buy the market "average" and one of those companies goes out of business, you don't get your money back to re-invest.

    Indexes such as DJIA and S&P just allow the stocks to disappear and then re-set the board as if the stocks had never existed.