The July 11 Intelligent Investor article, “Does Stock-Market Data Really Go Back 200 Years?” questions the quality of the early 19th-century stock data used in my book, “Stocks for the Long Run.”
The early data are supportive of stocks and have been further validated by new research. Bill Goetzmann and Roger Ibbotson’s (G-I) recently published article, “A New Historical Database for the NYSE 1815 to 1925: Performance and Predictability” is the most thoroughly documented research on early U.S. stock returns, collecting monthly price and dividend data on more than 600 individual securities over more than a century of data and it is free from the survivorship bias and other problems which the article alleged plague the early data.
Researchers agree that the biggest source of uncertainty in early stock data is the dividend yield, which was not always reported. As a result, G-I formed two series of dividend yields, one assuming that those stocks for which they could not find dividends had zero dividends (3.77%), and another which uses the dividend yield of those stocks for which they could find dividends (9.27%). They conclude “The true dividend return to a capital-weighted investment in all NYSE stocks is undoubtedly somewhere in between these two extremes.” My dividend yield, which the article claims is unrealistically high, is 6.4%, actually less than the midpoint of their two estimates.
But the case for stocks certainly does not rely on early 19th-century U.S. data alone. It relies on the more than 100 past years of data that have been collected not only in the U.S. but in 15 other major world stock markets. And the recent bear market does not invalidate the fact that it has been 150 years since we last had a 30-year period when bonds beat stocks.
Jeremy J. Siegel