I’ve posted Entry #296 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called We Have Seen a Four-Year Return of 127 Percent Followed By a 16-Year Return of 29 Percent — But That’s Not Possible!
Juicy Excerpt: There have been two distinct time periods for U.S. investment returns over the past 20 years. For the first four years of that 20-year time-period (January 1996 through January 2000), we saw a total return of 127 percent (this is an inflation-adjusted number, with dividends reinvested). For the latter 16 years (January 2000 through January 2016), we saw a total return of 29 percent.
If you assume that it is economic developments that determine price changes in the stock market, this suggests that the U.S. economy more than doubled over the four-year time-period and then increased by only one-third in the following 16 years, a time period four times greater in length.
Is this even remotely possible? It is not.
There were no economic developments of such great positive power to explain a doubling of the U.S. economy in the years 1996 through 1999. And there were no economic developments of such great negative power to explain why the economy would grow by roughly one-fourth of that amount in a time-period four times longer. These numbers just don’t make sense.