Ever since he published the bestseller, ‘A Wealth of Commonsense” five years ago, Ben Carlson has been astounding us with his ability to take long term data pertaining to the US financial system and re-present the numbers in a completely novel way. In this piece he makes you rethink almost every preconceived notion you might have about the US market.
For starters, you think stocks outperform bonds in the long run, don’t you? Ben tells you: “From the spring of 1996 through March 2020, long-term government bonds returned 8.2% annually versus a return of 8.0% per year for the S&P 500. And they did so with one-third less volatility. Most of the time stocks beat bonds over the long-term but not always.”
You have been told by your financial advisor that bonds are safe investments, right? Ben has news for you: “Long-term bonds lost more than 50% of their value after inflation from 1950-1981. This was the opposite of the current bond bull market. It was a time of high inflation and rising rates. On a nominal basis bonds were still up so this was all inflation eating away the returns.”
You tend to make your decisions about investing by looking at historical returns, right? Ben has something for you from the Japanese stockmarket that will make you reconsider this approach: “In the 1970s the MSCI Japan Index was up 17.4% per year. It followed up those wonderful returns by gaining close to 29% per year in the 1980s. This helps explain why Japan has returned roughly 1% per year ever since then.”
Did you say ‘House prices always go up’? You must have heard that one from your parents. Ben has news for you and me and for our parents: “Real housing prices in the United States were flat for more than 100 years from 1870 through 1975. Data from Robert Shiller shows housing prices went nowhere for more than 100 years in the United States…”
Do you like investing in gold because you have been told that it is a steady compounder? Ben gives you data which reveals a different picture: “Gold compounded at more than 35% per year from 1970 through January of 1980. That’s a total return of more than 1900%. From January 1980 through today, gold is up more than 150% or a little more than 2% per year.”
Whenever you feel that it is too risky to invest in stocks, you tend to hold cash, right? After all what could possibly go wrong if you hold cash? Ben shows that you holding cash can wipe you out almost completely: “Inflation totaled 98% in the 1970s. One dollar in 1970 would be worth 48 cents by 1979. That’s an annual run rate of more than 7% per year.”
Stocks tend to go up in the long run, right? After all, that’s what they have always done, haven’t they? Ben shows you that such assumptions can be fallacious: “The Dow closed at 381 in September 1929. It wouldn’t cross that mark again until November 1954. Most people more or less gave up on the stock market after the 80%+ crash during the Great Depression.”

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