I recently came across a graph showing month by month stock prices (Dow Jones Industrial Average) over the last 100 years, adjusted for inflation so that different years can be meaningfully compared:
In light of the conventional wisdom that stocks are a sound long-term investment, I took note of the following:
(1) The 1929 peak of roughly 5,000 was not recovered until 1959, 30 years later.
(2) The 1965 peak of roughly 7,000 was not recovered until 1995, 30 years later.
(3) Most of the gains occurred over the last 20 years, when the index rose from 7,000 in 1995 to over 18,000 at peak. This is especially obvious when the logarithmic scaling of the graph is turned off.
(4) From 1965 to 1982, a period of 17 years, stock prices sharply and more or less continuously fell.
Is the conventional wisdom that stocks are a good long-term investment based on the unusually large gains of stock prices in the "casino economy" of the last 20 years, which skew the longer-term average?
(Note: this was posted last night but somehow disappeared by this morning. I'm saving the text this time.)