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Kim Zussman

10/25/2005
Low N of Long Term Boys, by Kim Zussman

Somehow still interested in the long-term, I turned to Professor Shiller's site. It contains monthly data on "S&P composite" from 1871-present, including price, dividends, real price, and real dividends (adjusted for CPI). Using this longer data set (veracity unproved but ostensibly well scrutinized), looked at return patterns.

Especially in the earlier years dividends were a big part of returns. These were added in
ret=(this yrs close+div)/last yrs close], and annual returns including dividends were calculated Dec-Dec for 1871-2004:

Nominal annual return:
average 1.106 (10.56%)
sdev 0.181
count 133 (yrs)
average 1871-1997 1.1081
average 1982-1997 1.1801

The returns 1871-1997 were checked against Siegel's "Stocks for the Long Run", and appeared close enough (his were 10.7% and 17.4% respectively).

Looking at nest year's return if this year's was negative: average 1.113556878 (11.4%) sdev 0.216101434 count 37 Notice (like Dow post previously), annual returns were higher if last year was down.

And next year's return if the cumulative return of the past 5-yr was negative (product of rolling 5-year annual ret less than 1): average 1.202106691 (20.2%) sdev 0.19628682 count 12 If prior 5-year cumulative is down, next year is quite a bit higher.

Turned next to real returns (adjusted for inflation), in that investor behavior might relate not only to prior stock movements but also standard of living:

Annual real return 1871-2004:
avg 1.066 (6.6%)
sdev 0.169
count 132

If last year's real return was negative, this year's return: avg 1.080 (8.1%) sdev 0.206 count 45yrs. Like nominal, real returns are better the year after down years, but since inflation lowers nominal returns there are more down years in real terms and the returns were riskier.

And for the (24) 5-year periods with cumulative negative real returns, the next year's real return: avg 1.092 sdev 0.194 count 24 Like nominal, years following 5-down cumulative were higher and more frequent (again due to inflation eating return).

James E. Birk, of Morrisville, Pa., observes:

It strikes me that the article title "Low N of Long Term Boys" by Kim Zussman is a play on the Traffic song "Low Spark of High Heeled Boys." The lyrics of the song are oddly market-related: "The percentage you're paying is too high priced ...."

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