I’ve posted Entry #312 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Was the 37 Percent Loss for U.S. Stocks in 2008 Mostly a Mirage?
Juicy Excerpt: We see huge unforeseen negative developments in one year, followed by huge unforeseen positive developments in the following eight years. The net effect is that for the entire time period from January 2008 through July 2016, we saw an annualized real return of 5.7 percent, a number not too terribly far off from the 6.5 percent average long-term return that we would expect to see apply if there had been no particularly negative or positive economic developments at all.
My thought is that investors overshot the mark in their 2008 reassessment of the value of U.S. stocks. There really were serious economic negatives that turned up in the news in 2008. But they weren’t quite such the big deal as investors made them out to be in their first reaction to them.
And investors have overshot the mark on the up side in the years since. We were so frightened in 2008 that even average economic news would have come as a big relief. Perhaps the news was just average and the reason why we pushed stock prices up to a degree greater than average is that we were compensating for having pushed them down to an excessive extent in the overreaction of 2008.