Credit Suisse was founded in 1856, then shut down earlier this month by Swiss banking regulators, who forced the sale of the business to UBS. Thus, there is a certain irony and even emotion in looking at the Credit Suisse Research Institute’s 2023 yearbook which has just been published, titled “Credit Suisse Global Investment Return: Cutting Edge Insights for Navigating the Future,” written by Elroy Dimson, Paul Marsh, Mike Staunton. A summary edition of the report is available free online.
Each year, the report focuses primarily on long-term returns dating back to around 1900. Here is a chart showing the nominal and inflation-adjusted returns of US stocks, bonds, and “bills” (short-term government debt) . Yes, investing $1 in a diversified portfolio of US stocks in 1900 and reinvesting all dividends since then would have led to a real gain by a factor of over 2,000 since then. (Note that the vertical axis is logarthmic, increasing by factors of 10.)
In addition, this long-term perspective, based on annual data, puts certain significant events into perspective. The authors write:
The chart shows that US stocks completely dominated bonds and bills. There were of course serious setbacks, notably during the First World War; the Wall Street crash and its aftermath, including the Great Depression; the OPEC oil shock of the 1970s after the October 1973 war in the Middle East; and four bear markets so far in the 21st century. Every shock was severe at the time. At the height of the Wall Street crash, US stocks had fallen 80% in real terms. Many investors have been ruined, especially those who bought stocks with borrowed money. The crash remained etched in investors’ minds for at least a generation, and many subsequently chose to avoid stocks.
The top two panels of Figure 10 put the Wall Street crash in its long-term context by showing that stocks have finally recovered and hit new highs. Other dramatic episodes, such as the October 1987 crash, are barely recorded; the COVID-19 crisis does not register at all since the plot is annual data, and the market rallied and reached new highs by the end of the year; the bursting of the tech bubble in 2000, the global financial crisis of 2007-2009 and the bear market of 2022 appear on the chart but are barely noticeable. The chart puts the bear markets of the past into perspective. Events that were traumatic at the time now appear as setbacks in a longer term secular ascent.
But it’s also worth remembering that the US investment experience is extraordinary. As the authors put it, it would be “unwise for investors around the world to base their future projections solely on American evidence.” Here is a figure with international comparisons. Although two smaller stock markets, South Africa (ZAF) and Austria (AUS), have outperformed the US stock market over time, the US market has dominated global returns. For the record, most of the abbreviations here are for countries, but WLD is the index for the whole world, WXU is the world without the United States, EUR is Europe, DEV is developed markets and EMG is emerging markets .
The extraordinary growth of the US stock market since 1900 means that when it comes to global stock markets, US stock markets dominate the world. Here are the sizes of stock markets around the world in 1900 and in 2022.
