Elroy Dimson, Paul Marsh, and Mike Staunton are the OGs of finance. Their book Triumph of the Optimists: 101 Years of Global Investment Returns is almost like a bible of the modern markets. Every year, they publish a Yearbook with loads of amazing data points about investing and markets. Here are a few highlights from the 2022 yearbook.
Introduction and context
Change is the only constant in the markets. Since the birth of the first stock exchange in the 1600s in Amsterdam, the markets have evolved quite a bit. We’ve lived in a time when the US has been the biggest financial market—it’s over 59% of the World Stock market. But this wasn’t always the case. Once upon a time, in the heyday of the British Empire, the US was the biggest financial market. But as the sun finally set on the empire, the US became the dominant market after the world wars. Though, London remained the beating heart of modern finance until Brexit.
So for all the people thinking that US = international diversification, think again.
Over 122 years, the US markets have grown a whopping 4X in size. It’ll be interesting to see how this century pans out for growing economies like India and China.
US equity market overtook the UK early in the 20th century and has since been the world’s dominant market. Interestingly, Japan, at the start of 1989, accounted for 40% of the world index. But in the aftermath of the Japanese bubble in the 80s, it faded.
122 years of the global stock market.
Inflation and real interest rates
This table shows inflation rates around the world over the long run.
- Annualized inflation in the USA was 2.9% v/s 3.6% of the UK.
- There were seven high-inflation countries: Germany, Austria, Portugal, Finland, France, Japan, and Spain.
- Switzerland was the only low inflation country.
Real returns (nominal returns minus inflation) across various inflation regimes. Given the synchronized upswing in inflation across the world, inflation is everybody’s favorite bogeyman now. But you need to look at inflation and the impact on equities and bonds in the historical context.
Everybody is freaking out over the US raising rates by a percent or two. But if you zoom out, US interest rates are still low by historical measures. Can they rise as much as they did until the Volcker shock in the 1970-80s period? Sure, but as things stand today, interest rates are low.
Check the report if you’re interested in exploring more. Got any exciting charts on this? Do share