Studying market history has made me a better investor.
Calculating historical performance data is one of my go-to moves for this blog. It helps provide some insight into the potential risks and range of outcomes in the markets.
Market history also helps keep you grounded.
It’s important to understand the booms and busts — the South Sea Bubble, the panic of 1907, the roaring 20s, the Great Depression, the Nifty Fifty, the great inflation of the 1970s, the 1987 crash, the Japanese asset bubble of the 1980s, the dot-com boom & bust, the Great Financial Crisis and more.
These periods help define the human condition — from fear to greed, panic to euphoria, jealousy to the fear of missing out and more.
But market history requires context and perspective. It can help you prepare but it’s not a foolproof way to predict what comes next.
As Warren Buffett once wrote, “If past history was all that is needed to play the game of money, the richest people would be librarians.”
For example, thinking through the current economic regime has been difficult for investors and pundits alike.
In 2022, everyone assumed a recession was a foregone conclusion based on historical analogues (inverted yield curve, high inflation, etc.). It didn’t happen.
Now inflation seems like it’s under control and the Fed is cutting rates with the stock market at all-time highs.
And it feels like this means either the coast is clear or we’re on the verge of a collapse.
It’s hard to believe but we have been in this situation before (kind of).
I had our research team look at the forward 12-month returns from every initial Fed rate cut since 1957:
You can also see a breakdown of whether that initial rate cut came when the market was within