SBBI: The Almanac of Returns Data


Stocks, Bonds, Bills, and Inflation (SBBI) is often characterized as the almanac of returns data. This magisterial work originally produced by Roger Ibbotson and Rex Sinquefield is considered the "go-to" place when detailed information is needed on the historical returns, expected returns and risks of a multitude of asset classes. 

To the casual observer, SBBI seems a pretty dull read - reams of old numbers seemingly absent of rhyme or reason. However, careful digging yields a treasure trove of meaningful information that affirms the resilience and persistence of the capital markets. Akin to a sports almanac, SBBI delivers stock market scores going back to 1926, providing an abundant record of risks and returns for those interested in supplying capital to the world's markets.

The updates and introductory discussions have unveiled, in real time, the emergence of thoughts and ideas — as they took root, and moved from lofty notions to empirical facts. The collective volumes unravel the mystery of investing science — making one wish they could flash forward 30 years to peek at the truths yet to be discovered by those toiling with the data as we speak.

In 1977, the first edition was published. It is a testament to modern finance, including long-term historical data and Harry Markowitz's research on Modern Portfolio Theory. This book's purpose was to update historical returns from 1926-1976, and to revise forward-looking estimates from 1977-2000 through historical and yield curve data, as well as to address advances in research—all of which are borne out of study from the fount of data known as the Center for Research in Security Prices (CRSP). The SBBI has evolved since 1977. Each year, new data series are added and contemporary academic research is expounded upon.

Also in 1977, James Lorie and Lawrence Fisher published "A Half Century of Returns on Stocks & Bonds," which contains rates of return on investments in common stocks and treasuries. This book published by the CRSP founders never developed into the series that the SBBI did. So what caused the SBBI series to flourish?

SBBI through the Years

The SBBI series considers its core aims to:

  1. Document the history of security market returns.
  2. Uncover the relationships between various securities returns by examining the components of returns.
  3. Encourage deeper understanding of underlying economic history through graphs.
  4. Answer frequently asked questions.

The Impact of Information and Ideas – How the SBBI came about

"If I had to rank events, I would say CRSP is probably slightly more significant than the creation of the universe."

– Rex A. Sinquefield, former co-founder of Dimensional Fund Advisors, who helped to start the SBBI series. 

To understand the history of SBBI, we must turn to CRSP. Rex Sinquefield's comparison of the dawn of the data from CRSP to the creation of the universe may at first blush seem more than a smidge hyperbolic. However, having explored the significant milestones achieved through CRSP, we must admit the impact of information and ideas that evolved from CRSP and their roles in the creation of a new universe for finance and investing.

The Dawn of Creation for Investing Science

Before Rex Sinquefield became a leading man in the modern financial movement...before he was a key researcher in finance and economics...and before he received his MBA from the University of Chicago...he was studying to be a priest at a Jesuit seminary. This raises the question: "What is CRSP, and what makes it so important that Sinquefield would draw such a grand comparison?" 

The Center for Research in Security Prices (CRSP) is a database of stock market prices, dividends and returns. It is housed at the University of Chicago. The pioneering database has served as a wellspring from which numerous academics have drawn startling conclusions about markets. Established in 1960, CRSP is the first complete and accurate database of stock market returns.

To fully understand the significance of CRSP, one would do well to imagine life without it. Such a life would include no consolidated information or knowledge of capital market risks and returns. Collective wisdom about the expectations of returns from particular types of stocks would be non-existent, and we would not have the ability to measure the average compounded return on common stocks.

Imagine how challenging investing would be. Consider how a void of large amounts of cumulative data would reduce investing to conjecture or a speculative hope — at best. Historic returns and standard deviations would be hidden from sight.

Without CRSP, we would remain in the dark about how markets work, the reasons why we should expect a return and from which sorts of investments, and the benefits of diversification. CRSP's creation invited diligent empiricists to embark on a path of discovery that ushered in modern finance. Bravely embracing the data, in all of its transparency and abundance, academics forged ahead to discover patterns that revealed sources of returns and pricing models. Armed with the audacity to shake off the pre-conceived ideas about fundamental stock analysis and selection, the efficient market hypothesis took root in data -- and paved the way for lower-cost, market returns from index funds.

CRSP and The University of Chicago

"The entire field of finance has been changed and developed through that database, and how appropriate it is that it happened at The University of Chicago, a university that was set up as a research university and known since day one in 1892 as one committed to empiricism," Sinquefield once explained.

CRSP was launched in 1960 with a $300,000 grant from Merrill Lynch, and two dedicated data purists -- James Lorie, professor of finance and director of research, and Lawrence Fisher, assistant professor of finance at the University of Chicago.

Together, the two colleagues faced the colossal challenge of researching the accuracy of each piece of stock information. They made use of their own formidable training and experience to fill in the blanks for missing stock prices. Lorie estimated that between two and three million pieces of information were entered onto magnetic tape. They analyzed total return, dividends received, and changes in capital as a result of price changes of all common stocks listed on the NYSE going all the way back to 1926. Their findings were published in an article titled, "Rates of Return on Investments in Common Stocks," in the Journal of Business. The article cited the duo's conclusion that the average compounded rate of return on common stocks listed on the NYSE from 1926 to 1960 (35 years) was 9% for institutional investors. For the first time, an average rate of return could actually be measured. The front page of the New York Times financial section heralded the pair's results.

The creation of CRSP was like a spark to tinder. It catalyzed academic research and brought interest and insight from the best and the brightest. The CRSP database lured passionate and curious researchers to explore its data and contribute to it. As a result, The University of Chicago became a leading institution in stock market research and prodigious producer of Nobel Laureates in Economics. In fact, one of the 2013 Laureates who has served on the CRSP board was Eugene Fama. 

The genesis of SBBI goes back to 1977, when Nobel Laureate Myron Scholes returned to The University of Chicago to teach and decided that the CRSP data was in need of some serious updating. At the time, Sinquefield was a pioneer in developing the first index fund at American National Bank and was also known in Chicago as an eager and inquisitive student of Eugene Fama, architect of the widely accepted Efficient Market Hypothesis. Ibbotson, a former teacher's assistant to Fama, was a professor at Yale University. He also founded Ibbotson Associates, a financial research firm that was acquired by Morningstar. The collaboration of these four powerhouses led to the publication of SBBI.

The University of Chicago Booth School of Business has made innumerable contributions to modern finance. We have every reason to expect that to continue, and we are always ready to give recognition and credit where it is due.

SBBI has been published nearly every year since 1977; and from 1999 onwards, two editions have been published: The Classic Edition, and The Valuation Edition. These core aims are unchanged through the series. What has changed are the subjects covered, which have widened as our financial knowledge has increased. IFA has collected many of the editions of SBBI. Below we have compiled a summary of the changes through the years. (You can check the IFA Book Library to more closely inspect some of these editions.)

1977: The first edition forecasted returns using probability distributions through 2000. This was the first significant forecast of the stock market for over 20 years, unique in that it provided a probability distribution around the expected outcome.

1979: Added emphasis on fixed income: maturity and default premiums. The SBBI series continually covers new subjects, while maintaining its principle focus on securities returns.

1982: Started tracking small company stocks, which were of extraordinary interest to researchers because of high historical returns.

1985: Added Matrices for annual rates of return for all yearly holding periods—similar to The Matrix Book from Dimensional Fund Advisors, which is also derived from CRSP data.

1987: Introduced large and small company categories, in response to research from Eugene Fama and Kenneth French on size premiums. This shows small cap stocks have higher expected return than large cap stocks. Introduced bills, government and corporate bond analysis. Enhanced Capital Asset Pricing Model section.

1988: Added cost of capital estimation to help corporate finance professionals and added intermediate bonds series to complete the bond series.

1989: Changed method of calculating annual income returns.

1991: Added new histograms on frequency distribution of returns.

1993: Ibbotson Associates took over publishing. Added decade summaries of investment results and news.

1994: Categorizeded the S&P 500 as large company stocks. Expanded The Long Run Perspective to include holding period returns, which helps investors perceive the growth of their wealth. Added rolling period standard deviations and correlations.

1995: Added micro-cap data, an extension of previous work in the small cap data.

1997: Reintroduced forecast total return distributions after a 15-year hiatus.

1999: Launched The Valuation Edition. The Classic Edition retained its core focus on investors and wealth, while The Valuation Edition focuses on valuing companies.

2000: Added growth and value investing section, after research by Fama and French demonstrated that value stocks have a higher expected return than growth stocks. Added new chapter focusing on NYSE data since 1815. This is a key development in extending the time period of data to increase accuracy and reduce uncertainty about expected returns.

2002: The Valuation Edition included section on betas and statistical analyses. Introduced international investing, to broaden the scope from purely US securities. Added Ibbotson's and Peng Chen's study on Stock Market returns in the long run.

2003: Added Monte Carlo simulation for forecasting and optimization, which have been used extensively to model wealth and investment performance under random paths.

2004: Added portfolio performance which explains how portfolios of different allocations are expected to perform.

2005: Dedicated chapter to Monte Carlo simulation for the purpose of wealth forecasting and retirement planning.

2006: Added Real estate investment trusts.

2007: Morningstar acquired Ibbotson Associates and took over publishing. Added a summary of major capitalization and style indices of US equity market.

2008: Added new research on retirement and new mean-variance optimization enhancement.

2009: Added section on liquidity considerations in investing and added commodities to the long run perspective. These two developments were a response to investors' increased interest in alternative asset classes following the 2008 crash.

2010: Added Markowitz 2.0 and "new" portfolio optimization, a summary update of the over 50 years since Harry Markowitz published his seminal article and book, Portfolio Selection. Added "Lifecycle Investing." Added new monthly set of stock market returns going back 124 years. Added Morningstar Style indexes.

2013: Added alternative investing.

2016: Production of the SBBI was taken over by U.S. financial services and investment banking consultancy Duff & Phelps. Actual publishing of the book was assumed by John Wiley & Sons. 

This article is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal.