We hope that everyone got through Wilma with as little damage and interruption as possible.  We all experienced power outages, but compared to what Wilma did in Mexico and the disasters on the Gulf Coast we got away lucky.  It could have been much worse here if the storm was a strong category three or higher. 

With the ongoing catastrophic events of the past few years I felt it was important to review how events such as wars, hurricanes, earthquakes, etc. have affected the stock market in the past.  Below I have listed the returns of Small Company Stocks, Large Company Stocks, Long Term Government Bonds, and Treasury Bills for each decade starting in 1930.  Also listed are major events that have taken place within each decade, and lastly I listed the cost of inflation during that time period.  For this newsletter we are illustrating the period from 1930-1969.  The information is taken from a chart prepared by Ibbotson Associates published March 1, 2005.

1930s

Small Company Stocks 1.4%

Large Company Stocks- 0.1%

Long Term Government Bonds 4.9%

Treasury Bills 0.6%

Inflation- 2.0%

This was the worst decade for stocks; Long Term Bonds was the best performing asset.  This was also the decade of the bottom of the Great Depression.  The Dow Jones Industrial Average hit 41.22 in 1932, its lowest point, and World War II began in Europe. 

1940s

 Small Company Stocks 20.7%

Large Company Stocks 9.2%

Long Term Government Bonds 3.2%

Treasury Bills 0.4%

Inflation 5.4%

The first noticeable thing is the rise in inflation.  If you did not have equities you were losing ground on the cost of living by a large margin.   Bonds and Treasuries had a negative return.  On the global front the U.S. declared war because of Pearl Harbor, the first nuclear chain reaction took place and in 1946 the Post-war recession began. One dollar invested in Large Company stocks at the beginning of the decade grew to $2.40 and one dollar invested in Small Company stocks grew to $6.55. 

1950s

Small Company Stocks 16.9%

Large Company Stocks 19.4%

Long Term Government Bonds- 0.1%

Treasury Bills 1.9%

Inflation 2.2%

The pattern has continued.  Inflation is a winner against fixed income returns.  Small Stocks and Large Company Stocks continue to provide stellar returns.  In this decade we were at war with Korea, the Soviets launched Sputnik and in 1958 the U.S. launched its first earth satellite.  One dollar invested in Small Company stocks at the beginning of the decade was worth $4.77 and one dollar invested in Large Company stocks was worth $5.87.

1960s

Small Company Stocks 15.5%

Large Company Stocks 7.8%

Long Term Government Bonds 1.4%

Treasury Bills 3.9%

Inflation 2.5%

Stocks win again.  Fixed income continues to lose money to inflation, including the Treasury Bills at a taxable return of 3.9%.  On the Global front there was the Bay of Pigs, the Cuban missile crisis, President Kennedy was assassinated, the Six-Day War in the Middle East, the Tet offensive in Vietnam and Neil Armstrong was the first man on the moon.  A busy decade with a lot happening and yet stocks continued to grow.  One dollar invested in Small Company stocks was worth $4.24 and one dollar invested in Large Company stocks was worth $2.12.

Because of space and time constraints I will continue with the 70’s, 80’s & 90’s next quarter along with a 10 year period ending 12/31/2004.  From what we have seen so far, it appears that equities outperform fixed income and inflation for almost every period and that the major catastrophic events have little effect on stock performance over each time period.

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