Mark Hulbert reruns the Great Depression numbers and concludes that it only took investors who owned stocks in the fall of 1929 4.5 years to recoup their losses after the Great Crash.
We’d like to see the underlying data, because this is far shorter than other studies we’ve seen. But Hulbert’s twist is to include the effect of deflation and a broader index than the DOW, which most other studies don’t.
To be clear:
- It took the DOW 25 years to regain its 1929 highs in nominal terms.
- Including dividends, which reached a high of 14% at the depths of the crash (when the market was down almost 90%), it took about 10 years for 1929 DOW investors to get their money back.
- Including deflation, dividends, and a broader market measure than the DOW (according to Hulbert), it took 5 years.
Why use a broader measure than the DOW? Because the Dow Jones DOW committee has engaged in some lousy stockpicking over the years, including throwing IBM out of the index for 40 years.
IMPORTANT: Don’t use this to assume you’ll get all the money you’ve lost over the past 18 months within, say, another 18 months. Anything’s possible, but even after a 50% drop in the indices, current dividend yields (2.7%) are still below the long-term average. Our minor deflation has not yet taken the value of a dollar below its valuation at the peak. And the market’s valuation in 2007 was higher than its valuation at any market peak other than 1929 and 2007 (on a cyclically adjusted PE–see this chart).
Hulbert’s study is still encouraging for buy-and-hold folks, however:
[A]ccording to a Hulbert Financial Digest study of down markets since 1900, the average recovery time is just over two years, when factors like inflation and dividends are taken into account. The longest was the recovery from the December 1974 low; it took more than eight years for the market to return to its previous peak, which was reached in late 1972.