The legacy of common stocks as the cause of so much misery in the 1930s has been made all the more emphatic by historians who have felt compelled to finish the story by reminding readers that it took the once mighty Dow Jones industrial average until 1954 — a lost generation it would seem — to claw its way back to the summit reached in 1929. The image is teeming with innuendo.
The implication is that those who acquiesced to their greedy impulses in the late ’20s, which by all appearances included just about everybody, served penance for a quarter of a century thereafter.
To be sure, most who speculated and lost never purchased another stock for the rest of their lives. Even today, the universal mental image of the era begins with the wealth-destroying stock market crash, followed by the demoralizing and seemingly endless economic depression—and culminating with the manifold uncertainties of World War II.
Fear and remorse sounded the death knell for investment in what everyone had come to believe was the riskiest of all asset classes: common stocks. That perception stubbornly clings to the collective psyche as one of the great investment myths when talk turns to the Depression and its aftermath.
Facts Tell a Dramatically Different Story
Using annual data from the beginning of 1930 until the end of 1954, here are the plain facts, presented dispassionately. For openers, if one includes reinvested dividends, as clearly one should, $1 invested on January 1, 1930, in the S&P 500 was made whole during 1936.
That’s less than seven years to break even, not the much-ballyhooed quarter of a century.
As for the so-called “lost generation” from January 1, 1930, to December 31, 1954, the average annual total return (including dividends) for the more broadly based S&P 500 was 8.1%. Starting three years later in the depths of the Depression, on January 1, 1933, the average annual total return jumped to 14% for the 22 years. Sadly, the greater loss for a generation was opportunity, not money.
-- Frank Martin, Martin Capital Management, 2008 Annual Report [via lethean46]
see also http://stockmarketeers.blogspot.com/2009/04/4-12-sounds-better-than-25.html