Stocks over Time

With the recent turbulence on the stock markets, many people are wondering if they should keep their money invested in stocks and mutual funds. The mainstream advisors all say something like "investing in stocks is always good in the long run". This has been true during the period 1982-2000. However, it has not been so for other time periods. Someone who invested $100 on the US stock market in 1929 did not get his money back until 25 years later, in 1954. If you invested in the stock market during the spring of 2000, you didn't get your money back until 7 years later, this summer of 2007. And what has inflation done to that money during those periods? Definitely not good investments I would say. Although the very long trend of the stock markets has been up from 1901 to 2007, there have been long periods where the long trend has been sideways or down. Adam Hamilton explains it well in his article Long Valuation Waves.

If you look at the Swedish stock market the long trend from 1950 to 2000 looks like it went more or less up all the time. Here is a graph of AFGX (Affärsvärldens generalindex) 1950-2006.
However, if you look at the graph adjusted for inflation, the picture is quite different.
As you can see, the Swedish stock market actually went down from 1965 to 1980, if you adjust it for inflation. Not until 1982 did it come back to the same level as 1965. This means that during this period of 17 years, stocks were not a good investment in the long run. As you can see we have also gone more or less sideways 2000-2006 too (first down and then up). I'm convinced we've now entered another 17-year period when stocks are not a good long-term investment. As Adam Hamilton says in his article, these bear market periods have historically been about 17 years long. The latest bull market of 18 years from 1982 to 2000 also fits in very well with these long cycles.

The problem now is that most people giving financial advice at banks and in the media don't remember these long waves, since most of them have started working after 1982.
They have read about these long bear markets, alright, but most of them seem to think we're living in a new age where these long waves don't exist any more. So far all expectations for a "new financial age" have been brutally hammered down, in 1929 as well as in 2000.