Gyroscopic Investing

?

Thanks very much for the information Clive.

From time to time the UK Investors Chronicle publishes a chart showing the FT30 performance in nominal and inflation adjusted returns from 1935 to date of publication.  Last one I can lay my hands on was Dec 07.

Eyeballing the chart the inflation adjusted return shows no increase in value over the period. I.E. it just matched inflation.  I am left wondering whether the significant outperformance of stocks in the linked article is purely down to the reinvesting of dividends.

Clive, you might want to read this:

DShort.com: Inflation and Delusion

Here's the key quote from the article:

For purposes of contemporary planning, looking at any pre-1971 data is absurd and misleading.
...
If we are going to think about what inflation might be like in the future, the Consumer Price Index (CPI) from 1971 until today would be your best-case scenario. Averaging in CPI before 1971 is a non-case scenario — as one would be comparing a society on gold/quasi-gold standard to complete fiat money. Also it is important to understand how important making a low-inflation case is to the sell-side of the financial product sales world.

Clive wrote:In terms of eggs at least, it would seem far from being the case that CPI was being under-stated.

Eggs are subsidized to keep costs low and farmers happy. Seems like a rather poor example to use.

Clive wrote:just sticking to a single common denominator throughout (money or gold or eggs etc) is about the best we can do.

It just makes me wonder if 'the best we can do' is just too inaccurate to show us anything meaningful. I would think the major problem is that even small inflation miscalculations from 80 or 100 years ago would compound into very large errors today.