(Or what the boring do on Saturday morning)

Curious about investor dispositions over time, I used DJIA monthly closes 1928-present (w/o dividends) to calculate a rolling compounded 10 year return. At the end of each month, plotted the product of this and the prior 119 month's return vs date (see attached - dark blue line) defined:

Month return = (this month close) / (prior month close) = "M"

10y compound rolling return = {M * M(t-1) *…… *M(t-120)}

Also plotted in pink is ln(DOW) - 4 (to scale with 10y compound rolling return)

Assuming October ends about where it is now, the 10y compound rolling return is currently just under 1 (0.975), which hasn't happened since 1982. The last time 10y compound rolling return dipped below 1 was 1974, and it hovered around this level for 8 years. The the prior sub-1 regime was in the 1930's, so the wait was about 40 years. There is about the same wait between 10y compound rolling return peaks -from 1959 to the most recent in 2000.

While there are few inferences to be made when N=2 (but how often do we get markets like the current one…), this could be evidence for cycles of over–and under–enthusiasm for stocks on the timescale of human-investable-years.





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