Looking at history, it is common to find times of great optimism followed by several years of poor investment results in stocks. The contrary is also true. Times of great economic anguish and pessimism are often followed by superb investment returns from stocks.
The 1920s followed by the Great Depression and the Tech Boom of the 90s followed by the 2000s are some obvious examples. Fantasically optimistic times, each followed by a decade of negative returns (after adjusting for inflation).
Any other time periods like this you can think of over the last century? Take a moment to think about accomplishments that heralded great optmism about technology, about the economy, about the human condition.
Did you think of the first moon landing of Apollo 11?
Several years ago I was considering this dynamic of optimism followed by crash and pessimism followed by boom. I wondered — what happened to the stock market after the moon landing?
Neil Armstrong set foot on the moon on July 21, 1969. Here is a chart of investment returns for 10 years, starting in July, 1969. The US total market is in blue. The inflation adjusted returns are in green.
Not so good. Returns averaged 4.73%, but on an inflation adjusted basis they were negative, averaging -2.13% per year.
How were you feeling about the future when Armstrong set foot on the moon? Probably a lot different than a guy waiting in a line for soup in 1932. But when would have been the better time to invest in the stock market….
We all know our emotions can get in the way of smart investing. When I advise clients, I also help them understand how “logic” and “rational analysis” can get in the way when it’s used to forecast. It would have been easy to come up with rational reasons why the world is collapsing in 1932 or why 1969 is ushering in a new era of prosperity for mankind. But loading up on stocks in 1969 or dumping stocks in 1932 would have had disappointing results. It’s just another reminder of the snags that can eat away at a family’s investment results as the decades pass by.
Photo by Neil Armstrong, NASA