What can we learn from a Century of Stock Market Returns?

Legendary investor Charlie Munger, famed for his role at the helm of Berkshire Hathaway alongside Warren Buffet, died at the age of 99 on 28 November 2023. He would’ve been 100 years old on New Year’s day.

The stock market experienced 5 major crashes during his lifetime, the Great Depression being by far the worst, during which the S&P 500 lost 80% of its value. He also lived through World War II and the Cold War, inflation and high interest rates in the 70s, the internet bubble, the housing bubble, numerous recessions, COVID-19, and so on. Think of some of the major events and crises that have taken place over the last century. Think of the newspapers, headlines, breaking stories, predictions, etc. Think of the advances made in technology, medicine and other fields. Think of how much has changed, even things we regard as being constant, like national borders… And that’s just the last 100 years. What might happen in the next 100?

The Lasting Impact

The investment world, especially the media, places a great deal of importance around daily happenings. Every day there’s a story important enough to make the front page, significant enough to cause many people to make major long-term investment decisions. These stories drive a lot of volatility in the stock market, which in the short-term is all we see. But over the long-term these stories come and go, and so does the volatility.

What really matters is profitability compounded year after year. $100 invested in the stock market (S&P 500) on Charlie Munger’s birthday – 1 January 1924 – would’ve grown to nearly $2.2 million dollars over his lifetime. A return of 10.5% per annum, despite all the craziness of world events during that time. That’s the lasting impact of the stock market over the last century.

The Next Century

It seems unlikely that the next century will be any less chaotic or more predictable than the last. The stories that dominate our thinking today will likely fade with the passage of time. But the discipline of investing in good businesses at good prices for the long-term is likely to leave a tangible impact that outlasts any of these stories. There will be plenty of volatility along the way, even a crash or two, but don’t let these things deter you from consistently doing the basics well. Don’t let the news sway you from your long-term investment plan.

“If you’re going to invest in stocks for the long term or real estate, of course there are going to be periods when there’s a lot of agony and other periods when there’s a boom. And I think you just have to learn to live through them. As Kipling said, treat those two imposters just the same. You have to deal with daylight and night. Does that bother you very much? No. Sometimes it’s night and sometimes it’s daylight. Sometimes it’s a boom. Sometimes it’s a bust. I believe in doing as well as you can and keep going as long as they let you.” — Charlie Munger (2021)