Step 9: History

History
Understand the historical risks and returns of indexes


History





9.1

Introduction


Only a good understanding of the long-term historical risk and return of various indexes will enable you to know how to allocate indexes in accordance with your own unique Risk Capacity™.  In this Step we provide you data on the risk and return characteristics of both size and value subsets of markets around the world.  For some indexes, we have data going back to 1926. This summarized data is meant to give you a general overview. 

In Step 10, we will be much more specific as to the various combinations of these indexes to create whole portfolios of 20 different levels of risk.

 

Quotes


Ted Aronson "It takes between 20 and 800 years of monitoring performance to statistically prove that a money manager is skillful rather than lucky - which is a lot more than most people have in mind when they say 'long-term' [track record]."
Ted Aronson, "Confessions of a Fund Pro", Money, Feb 1999, pp. 73-75.
Sir John Templeton "The four most dangerous words in investing are, It's different this time."
Sir John Templeton, legendary investor. Money Magazine, Fall 2002, p. 25
William Bernstein "Those who are ignorant of investment history are bound to repeat it. Historical investment returns and risks of various asset classes should be studied. Investment results for an asset over a long enough period (greater than 20 years) are a good guide to the future returns and risks of that asset. Further, it should be possible to approximate the future long-term return and risk of a portfolio consisting of such assets."
William Bernstein, "The Intelligent Asset Allocator"
Patrick Henry "I know of no way of judging the future but by the past."
Patrick Henry, March 23, 1775, Virginia Convention Speech
Harry S. Truman "The only new thing in the world is the history you don't know."
Harry S. Truman
Susan Dziubinski "Statisticians will tell you that you need 20 years worth of data -- that's right, two full decades -- to draw statistically meaningful conclusions. Anything less, they say, and you have little to hang your hat on. But here's the problem for fund investors: After 20 successful years of managing a mutual fund, most managers are ready to retire. In fact, only 22 U.S. stock funds have had the same manager on board for at least two decades--and I wouldn't call all the managers in that bunch skilled."
Susan Dziubinski, University editor with Morningstar.com
James Davis "While much has changed over the years, some things remain the same. There is still a strong relation between risk and expected return, and price-scaled fundamental variables (such as book-to-market) still have explanatory power for stock returns. Some things have stood the test of time."
James L. Davis, Digging the Panama Canal
Master Po "If a man dwells on the past, then he robs the present; but if a man ignores the past, he may rob the future. The seeds of our destiny are nurtured by the roots of our past."
Master Po, Kung Fu Television Series
Sir Arthur Conan Doyle "Data! Data! Data!" [Sherlock Holmes] cried impatiently. "I can't make bricks without clay!"
- Sir Arthur Conan Doyle, The Adventures of Sherlock Holmes, The Adventure of the Copper Beeches (12th in the series of 12 short stories), 1892
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