I computed the terminal wealth and compounded annual rate of return for all stocks that traded on the NYSE, AMEX and NASDAQ between the years 1983 and 2006 (including delisted stocks). I did this on a total return basis (dividends re-invested). Attached are the resulting distributions. I am somewhat surprised by the results. I'm curious as to what the rest of you think. Terminal wealth** = ( last closing price / first closing price ) - 1 Annual compounded return** = (( last closing price / first closing price ) ^ ( 1 / ( number of days / 220 ))) - 1 **data proportionately back-adjusted (on a percentage of stock price basis) for all data points prior to the ex-dividend date -- Eric Crittenden Director of Research Blackstar Funds, LLC 2375 East Camelback Road Fifth Floor Phoenix, AZ 85016
What surprised you exactly? The TerminalWealth looks OK to me... it's paper, and it returns mostly to zero. The AnnualCompReturn is a log-normal(?)...or something like it.... (What's the mean? I bet it's: GDP growth+inflation; the stockmarket cannot grow faster than the economy+inflation, in the long run.)
The mean I came up with is 10.98% If you throw out the right tail (don't hold your winners) the whole thing goes negative.