In the past 90 years, the US stock market has generated returns exceeding 9% annually. Yet, this growth has been irrational sometimes (fear and greed), as the US Stock prices grew twice as fast as business earnings.
From 1920 to 1929, Dow stocks’ business growth was 118%…stocks went up 271% (300% with dividends)…and then corrected from 1930-1940 falling 41%.
Global growth was 250% from 1989 to 1999, and then 21% from 2000 to 2010 (Source: MSCI Index of Developed Countries).
From 1988 to 1998, Coca-Cola increased its profits by 294%. Their stock went up an irrational amount of 966% (Source: Value Line Investment Survey). The dog (stock price) was head of its master (business earnings). It eventually corrected after going up 29% a year for a decade…in 2011, the stock price was lower than in 1998…as earning growth and stock price realigned (Source: Millionaire Teacher).
Is your stock price aligned with your business earnings / growth?
