Chart of the Day – 100 Years of U.S. Stocks

by Enis June 18, 2012 2:13 pm • Commentary

I came across a great post last week from the Brooklyn Investor blog with an equally compelling point about the chart, so I simply borrowed from him for today’s CotD.

It’s actually a log chart of the DJIA going back a little more than 100 years.  The main point that Brooklyn Investor makes (and I agree) is that today’s investors frequently complain about the market’s volatility, but when we go back and look at the historical chart, today’s volatility does not seem abnormal in the least.

In fact, one could argue that it’s less volatile than one might expect given that the global economy is more levered (measured by debt to output) than at any point in the past 100 years.  The 20th century prior to World War II was littered with similarly sized ups and downs, and the climb and fall of the Great Depression dwarfs our recent boom and bust.

I bring this up because all too often, modern-day commentators and researchers like to use the past 20-40 years of market data as their period of study.  Compared to that period, market volatility is indeed quite high, but compared to a broader sample size, the current volatility might just be the normal machinations of speculative stock markets.