Sunday, October 12, 2008

100 Years of Stock Market History (log graph)

In times of turmoil, such as a financial crisis, I look for one of those big charts with an arrow that says, “You are here.” It is in that spirit that I offer the following long-term log graph summarizing over 100 years of DJIA (Dow Jones Industrial Average) performance / history. I will defer most of my analysis until later, and for this post rely mainly on what one of my statistics professors used to call “interocular trauma.”

Dow Jones 100-Year Stock Market History Chart


stock market history chart year-end 2012 (Dow Index closing prices since 1900 log graph)
Dow Index 100-Year History Chart


Stock Market Performance Since 1900 Has Alternated Between Excitement and Disinterest


Above is a graph of stock market (Dow Jones) performance since 1900 (click on image to enlarge it). It shows year-end closing prices through 2012. (See Yearly Returns for a bar chart of the returns each year.) While some describe this history as
a steady long-term upward trend, to me it appears to show alternating periods of excitement and disinterest. For example, the periods from ’33 to ’65, and from ’82 to ’99 were periods of excitement. From ’33 to ’65 the average return was about 7% per year, plus dividends -- for a total of approximately 10%. From ’82 to ’99 the average return was about 15% per year, again plus dividends – though dividends in recent decades were significantly smaller than they were in earlier decades.

The Long Flat Periods


On the other hand, the 1905 close of 96 was not permanently eclipsed until 28 years later -- 1933; the 1965 close of 969 was not permanently eclipsed until 17 years later -- 1982. I use the word “disinterest” to characterize these long flat periods. (Note: This is a log graph. If you are not familiar with them, see About Stock Market Log Graphs.)

In the long term, you would expect that stock market performance should approximate the performance of the underlying businesses. Therefore, an obvious interpretation of the chart is that the stock market periodically gets ahead of itself by increasing faster than the underlying businesses, and then has to wait for the “real” value of the underlying businesses to catch up during the long, flat periods of “disinterest.” If that is the case, we could well be in another one of those periods of “disinterest” -- though when you’re actually in one of those periods, you may find other words more descriptive….

Note: The above chart and discussion ignores the impact of inflation. To see the long flat periods adjusted for inflation, see 100 Years of Inflation-Adjusted Stock Market History. Warning: not for the faint of heart!

The Monthly Update, & Adding the 25-Year Moving Average as a Support Level

The March 2013 Stock Market Performance post includes a recap of the most recent month and year-to-date, plus comparisons to important milestones such as all-time highs and crash lows. In addition, it includes the most recent projection for 10-year market returns. The 25-year moving average can be a useful addition to the above graph. As discussed in Dow 25-Year Moving Average History, the market has very rarely fallen below its 25-year moving average. That is, historically this moving average has been a reliable support level during secular bear markets. That graph is updated infrequently, as appropriate.


Oh, what is “interocular trauma”? It was the late Professor Harry Roberts’ way of saying “it hits you right between the eyes.”


Recommended Reading:

Other long-term perspective posts
100 Years of Treasury Bond Interest Rates: Similar perspective on interest rates.
Inflation-Adjusted Stock Market History: Like this post, but adjusted for inflation. And, another eye-opening perspective on "the long flat periods."
100 Years of Housing Price History: Graph of housing price index since 1900.
Comparing Housing vs. Stock Market Growth: shows long-term stock market growth including reinvested dividends (the chart above excludes dividends).
Dow Yearly Return History: bar graph of yearly total return (i.e., including dividends) beginning 1929.
Dow Price/Earnings Ratio History Since 1929 - Yearly Graph: Similar perspective on P/E ratio.

Closer looks at bubbles, alternating excitement/disinterest, & long flat periods
Chart of 1929 Stock Market Crash for a closer look at 1929-1932.
The 25 Best & Worst Yearly Stock Market Returns: a closer look at 1-year returns.
Borrowing Returns from the Future: the price of extraordinary current performance may be decreased future returns.
Dow Index Inflation-Adjusted Close History: Impact of inflation adjustment on the long flat periods.
The Composition of 10-Year Returns: additional perspective on the alternating excitement and disinterest phenomenon.
Irrational Exuberance: Robert Shiller’s book discussing the causes of bubbles, and presaging the bursting of the tech bubble in 2000.
Who's Afraid of a Sideways Market?: Interesting perspective on long flat periods from Morningstar.
For other popular posts, see the sidebar to the left or the blog header.

Data and Computations

For those who would like to perform additional analysis, see this post for a link to my Dow Jones yearly closing data and the associated calculations. The spreadsheet will automatically calculate the Dow's growth rate between any two years you input (e.g., average stock market return between 1982 and 1999, including dividends).

Copyright © 2011.             Last modified: 3/30/2013

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23 comments:

  1. Could you post where got the raw data from? I'd like to do some similar analysis myself.

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  2. Anon,
    The data is from a spreadsheet I created (manually)some time in the 1990s. I'm virtually certain that the original data (through 1989)came from Barron's Finance & Investment Handbook (Third Edition). Data since then is from some combination of Barron's, Morningstar and the local paper from where ever I was living at the time.
    I'm guessing that doesn't help you very much.... So, I'll see if I can figure out how to post a spreadsheet. It may take a while.

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  3. This comment has been removed by the author.

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  4. Anon,
    Done (see Related Reading). Sorry it took so long.

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  5. The central bank recklessly engineered an enormous bubble to form starting in the 1980's, so big that it dwarfs the 1920's bubble. Anybody who thinks we're getting out of this ok
    needs to re examine the facts. All of the current attempts such to re inflate this bubble, such as taxpayer subsidized auto, home and appliance sales will only hasten the day when the former united states is at the mercy of the world.

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  6. I agree with your analysis up to the point were we are now. However, the problem is that we are shipping jobs overseas at an alarming rate. What used to be American companies are now multinational, and those companies have shifted operations to China and elsewhere. Over the long term as this trend expands, the United States will be faced with deflation as values decline and wages fall. At the same time, the American government has removed most of the safeguards put into place after the Great Depression, and thus placed us in a position for banks and brokerage houses to fail. Unless the regulations making banks, banks and limiting their size and function, and brokerage houses are not permitted to be banks, our financial system will not be sound.

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  7. Much appreciate your analysis here. Its now over a year later, how do you think the situation has changed?

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  8. I'm not sure that I understand your question, but I'll try to answer anyway.

    The value of looking at 100-year charts is that one additional year doesn't change very much. That's the advantage of looking at history from this broad perspective. When I update the 100-year chart at the end of the year, to me it won't look significantly different from the way it looked a year ago. As a result, my interpretation is likely to be the same -- I'll still see stock market history as consisting of periods of excitement followed by "long (relatively) flat periods" where the underlying businesses have to catch up to a previously euphoric stock market. So, I would not be surprised if years from now a like-minded soul doing a similar analysis reached a similar conclusion. In that sense, the situation is unchanged.

    But, understand that what looks "flat" in hindsight doesn't necessarily feel that way when you're in the midst of it. For example, 1973-74 were horrible years for the stock market; 1975-76 were very nice. In hindsight, taking the big view, all those years were part of a long flat period. So, even in these flat periods there are opportunities to make, or lose, a lot of money over the short term. From that point of view, it's clear that the situation has changed in that investing a year ago would have produced better results than investing now. I'm guessing you already knew that.

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  9. Have you ever posted the figures for the years? I need the year end number for the years 1901 - 2009.

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  10. rj,
    See the "Data and Computations" section of the post.

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  11. The stock market is gambling, to be sure. But putting all your money into cash equivalents is also risky- at best, if you are in TIPS, your money will only keep pace with inflation.

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  12. While investing in the stock market does involve risk, in my opinion calling it "gambling" goes too far.

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  13. I'm curious....what is the value of 1929's $75,000 in todays dollars? .....emb

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  14. emb,

    Excellent question. Unfortunately, I don't know the answer -- yet. Since we're looking at the stock market since 1900, it would be helpful to see those numbers adjusted for inflation. I plan to add inflation data later this year or early next year.

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  15. At 3% inflation per year the 1929 dollar is worth 0.84821 ¢.

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  16. At a 3% inflation rate the $75,000 in 1929 would now be worth $6361.67 at the end of 2010.

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  17. emb, there's your answer -- at least, an approximation. Thanx anon.

    The bigger issue is still inflation-adjusting the whole chart. Definitely plan to do that this year.

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  18. emb,
    FYI, there are now a couple of posts that address your question about 1929 prices in today's dollars:
    100 Years of Inflation-Adjusted Stock Market History is like this post, but in constant 2010 dollars.
    The Observations Inflation Calculator/Spreadsheet will convert dollars in any year to equivalent dollars in any other year.

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  19. I have to make a line graph charting an individual stock in the month of november but in a year from the late 1800's to 1910. can you offer any resources that would provide the daily/weekly stock prices? thanks

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  20. I don't know of any general source for such info. Maybe the most likely source for data that old and that detailed is the companies themselves. Sears and G.E. are two companies that were around back then; you might try them.

    Good luck.

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  21. I was looking at a chart (not 100years, it was outlining that longterm, common stocks return 10% adjusted with inflation where dividends are reinvested)- what does this return mean? Is that 10% average every year? In other words, 30 years turns £10,000 to £174,494? If so, surely that means common stock are much better than property, which only averages 3% after inflation?

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  22. If longterm stocks with dividends reinvested return 10% inflation adjusted- does that mean 10% every year? Eg, 10,000 becomes ~175,000 with no loss in value of money in 30years? If so, doesn't that make stocks much better than property which returns 3% average?

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  23. In fact, property prices increase less than 3% as inflation is not included. Apparently property will struggle to beat inflation for the near future. Does the stock market fair the same?

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