Jesse Felder posted a chart of the S&P500 from the 1920s until today, showing that the best linear fit of compound annual growth rate (CAGR) is 6.8%. Seems low, but here is the image... what do you think?
So I wondered... what if you took the 1982 S&P500 low, and compounded that low forward to 2025? What immediate "haircut" would the S&P500 have to take to get back to those extremely good values of 1982? The answer is that S&P500 would have to fall immediately to 1950, and take a -69.4% haircut. Hmmm.
Well, if the S&P500 peaked in June 1968, and troughed in February 1982, that's almost 14 years. What if the next round-trip was also to take 14 years? Where would those S&P500 price points be if you keep projecting the 1982 low forward to 2039?
If you do that, then in 2039 the S&P500 will be -23% below where it is now, in nominal terms... to which the 100% Buy & Hold Equity crowd will cheerfully chirp, "Oh, only -23%! That happens all the time!" Yeah, but... 14 years. Opportunity cost? That's -23% NOMINAL.
So we don't need a sharp crash... we just need S&P500 to be range-bound for 14 years to have a Lost Decade. Or it could go up in real terms, and the US Dollar could sink.
What would it take to get to 1982 stock market valuation levels?
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