A battered generation of investors

 In Articles

The end of the longest ever

A month ago, after eleven years, the longest bull market on the stock exchange ever, ended on the head. In March 2009, the most hated, but longest-running stock market ever to emerge on the ruins of the credit crisis began. Eleven years later, a vicious and persistent virus put an end to it. In 2020, when investors take stock of the past ten years, they can only look back on this period with satisfaction. It will be different when we consider a somewhat longer period, say 20 years. How have shares done since the turn of the century?

Less well

Then the image doesn’t look so good. For example, an investor who joined the S&P 500 20 years ago realized an average return of 4.8 percent per annum. That is about half of the return that investors can expect on the basis of very long-term averages. After all, over the past 100 years, the average annual return on equities has been around 10 percent. Viewed in this light, the period since 2000 has been on the meagre side. In the history of this index, it has not even occurred since the Second World War that the return over a 20-year period was so low.

Three crashes

The current generation of investors – i.e. those who have been investing since the 1990s – has therefore had to endure quite a hard time over the past two decades. In 20 years, they had to deal with no less than three historically rather severe crises. First there was the infamous internet bubble that snapped at the beginning of this century. The Nasdaq dropped no less than 90 percent. In 2008-2009 followed the credit crisis that halved the leading stock exchanges. And now the fastest decline ever due to an unknown but extraordinary virus. The consequences of this cannot yet be properly assessed, but we have now had a meteoric crash.

Too much of a good thing?

Three such severe crashes is normally too much of a good thing. For many investors it would be the end of the story. It’s still too early to tell, but so far investors seem to have been left behind. Perhaps it is precisely in the experience that it all worked out well the last two times. Also in 2003 and 2009 the mood on the stock exchanges was extremely gloomy. It later turned out to be a fertile ground for a nice rally. Investors seem to hold on to that again.

Supported by statistics

But investors are also supported from a statistical point of view. Because the last time the 20-year return on the stock exchange was so low, it turned out to be 1982. The average annual return on shares in the previous 20 years was no more than 6.5 percent. Bear in mind that at that time, investors had just emerged from two major oil crises and the bear market of the 1970s. It was the time when a well-known American magazine made the famous statement “Death of equities” on its front page. The mood was gloomy. Investing in shares seemed more like something for the eccentric.


Nothing could be further from the truth. During that period, interest rates in the United States were even as high as 20 percent and would then begin to fall for almost 40 years. Equity prices, however, were moving in the opposite direction. In 1982, the foundations were laid for a bull market that – with a few interruptions – would continue until the year 2000. In other words, the fact that the past 20-year period has been lean and returns have reached their lowest level for a long time could well be the starting point of a long upward trend. That is not to say that the stock markets will start tomorrow. Some volatility will remain on the stock exchange in the coming period. But investors with a long horizon may be able to look forward to two better decades. For a hard-hitting generation of investors, a prospect to hold on to. As far as they can still hold out.

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