I’ve posted Entry #287 to my weekly Valuation-Informed Indexing column at the ValueWalk.com site. It’s called The Statistical Support for Long-Term Return Regimes Is Compelling.
Juicy Excerpt: The most convincing case that I have seen that it is not an illusion is the case put forward in a book by Michael Alexander titled Stock Cycles: Why Stocks Won’t Beat Money Markets Over the Next Twenty Years. Please note that the claim made in the subtitle was widely perceived as crazy at the time it was made (the book was published in 2000) and yet has proven prophetic — stock returns over the past 16 years have been far smaller than the returns that were available in 2000 through the purchase of super-safe asset classes like Treasury Inflation-Protected Securities and IBonds. Buy-and-Holders would have said at the time that a prediction of 16 years of poor returns was exceedingly unlikely to prove valid. And yet Alexander knew something (or at least thought that he knew something) compelling enough to persuade him to put his name to that claim in a very public way.
Alexander engaged in extensive statistical analysis to determine whether stock price changes really do play out differently in different long-term regimes. He concluded that: “The effect of holding time on stock returns in overvalued markets is the opposite of what it is for all markets. Normally, holding stocks for longer amounts of time increases the probability that they will beat other types of investments such as money markets…. In the case of overvalued markets (like today), holding for longer times, up to twenty years, does not increase your odds of success.”