These are trends in the total return of the US stock market.1 Across different time frames:
Year-to-date: +11%
1 year: +30%
5 years: +94%
10 years: +223%
15 years: +679%
Not bad considering there have been two bear markets in the past four years.
If you invested $10,000 in the U.S. stock market five years ago, your money would essentially double.
Next, let’s look at the revenue by year.
2019: +31%
2020: +21%
2021: +26%
2022: -20%
2023: +26%
2024: +11%
The 2022 bear market was painful, but given the strength of the market since then, it seems like a distant memory.
Since the beginning of 2019, the U.S. stock market is up more than 16% annually.
Looking at these numbers, it seems like it’s time for some bad profits or at least a pause in activity.
There are cycles in the market. The bad tends to follow the good and vice versa…eventually.
You can’t expect good times to last forever, but you can’t set your clock on these things. The stock market is random, especially in the short term. Let’s take a look at the S&P 500’s calendar year returns since 1928.
They are all over the map.
You can’t predict what will happen next based on what just happened. Investing would be easier if that were the case, but it isn’t.
Just because you get five tails in a row, there is no longer a chance that the coin will turn up heads. Even if the roulette wheel is red 10 times in a row for him, it doesn’t make the next black more likely than usual.
The gambler’s fallacy is the belief that random events are more or less likely to occur due to the outcome of previous events.
Let’s see how this plays out in the stock market.
There is no real predictive power based on what has happened before.
A good year can lead to a bad year. A bad year can lead to a good year. Sometimes a good year leads to a better year. A bad year can lead to a bad year.
Mean reversion can be a powerful force in the stock market.
However, in the short term, market returns are still fairly random.
Michael and I talked about stock market performance in recent years and more in this week’s Animal Spirits video.
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References:
30 years of financial market returns
Well, here’s what I’ve read recently:
Books:
1I’m using the Vanguard Total U.S. Equity Mallet ETF (VTI).
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