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Ultimate Black Swans
Anthony FJ Garner
edited

Hilarious: I thought 1929 was the ultimate absurdity until I went to the bank of England website and took down their stock market data (monthly) from 1709.

I cleaned up the dates (dates before 1900 can be quite a laugh) and ran a simple trend following system against the data. A bog standard asset allocation system such as you see on many websites like Gary Antonacci's.

And lo and behold the great South Sea Bubble of 1721 hit me in the face.

Dear old Gary has done a good job back testing his Dual Momentum system back to 1971 with MSCI Index monthly data.

But he really should take a look at the South Sea Bubble.

3 responses
Behavioral Trader

Anthony, what we can learn form history is that people do not learn from history. Asset bubbles have and will happen, and you can either be like Taleb (bet on their collapse, but lose your shirt in the meantime) or like Soros (salivate during bubble formation, but cut your profit short at the first sign of it bursting), or like Buffett, invest forever in an index proxy which pays hefty dividends (while borrowing at zero interest rate, or something close to it). Anyway, stocks are the ultimate bet on productivity, creativity, intelligence, and humanity, in a sense, and you can diversify them with bonds, gold, real estate, etc., but what you will find is that indexing and collecting dividends is the bet with the highest total historic return.

Just out of curiosity, what is the total return on British Stocks since 1709, adjusted for inflation? What about average annualized return? Thanks!

Anthony FJ Garner

Don't know, haven't inflation adjusted the stock index yet. But in the US, using Robert Schiller's data the total return inflation adjusted since 1871 produces a CAGR of 6.79%

Anthony FJ Garner

Take a look at the chart. Sobering stuff indeed.
UK Stock Index from 1709

CAGR around 2.5% BEFORE inflation adjusting.

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