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Triumph of the Optimists: 101 Years of Global Investment Returns

by: Elroy Dimson, Paul Marsh, Mike Staunton
en

0691091943  9780691091945 

 


Triumph of the Optimists: 101 Years of Global Investment Returns
By Elroy Dimson, Paul Marsh, Mike Staunton


 


Product Description:

 

Investors have too often extrapolated from recent experience. In the 1950s, who but the most rampant optimist would have dreamt that over the next fifty years the real return on equities would be 9% per year? Yet this is what happened in the U.S. stock market. The optimists triumphed. However, as Don Marquis observed, an optimist is someone who never had much experience. The authors of this book extend our experience across regions and across time. They present a comprehensive and consistent analysis of investment returns for equities, bonds, bills, currencies and inflation, spanning sixteen countries, from the end of the nineteenth century to the beginning of the twenty-first. This is achieved in a clear and simple way, with over 130 color diagrams that make comparison easy.

Crucially, the authors analyze total returns, including reinvested income. They show that some historical indexes overstate long-term performance because they are contaminated by survivorship bias and that long-term stock returns are in most countries seriously overestimated, due to a focus on periods that with hindsight are known to have been successful.

The book also provides the first comprehensive evidence on the long-term equity risk premium--the reward for bearing the risk of common stocks. The authors reveal whether the United States and United Kingdom have had unusually high stock market returns compared to other countries. The book covers the U.S., the U.K., Japan, France, Germany, Canada, Italy, Spain, Switzerland, Australia, the Netherlands, Sweden, Belgium, Ireland, Denmark, and South Africa.

Triumph of the Optimists is required reading for investment professionals, financial economists, and investors. It will be the definitive reference in the field and consulted for years to come.

 



Summary: Priceless
Rating: 5

This book, together with a good book on Warren Buffet basics, will provide the private stock market investor with the tools needed for extraordinary investment success. First, a book on Buffet basics will teach the investor how to identify exceptional businesses and how to value them correctly (by calculating the present value of the total cash that can be extracted from the business during its expected life). Next, Triumph of the Optimists will be of tremendous help in selecting the appropriate valuation variables, e.g. equity risk premium, discount rate, etc to be used. By incorporating the statistics provided in this book into your valuations, you will have 101 years of global investment history on your side. As a global investor for more than twenty years, I sometimes had to learn the hard way that "reversion to the mean" is a basic investment truth that dare not be ignored. This book will tell you what that "mean" is. Some may argue that this book is expensive, or that its statistics may be slightly distorted, but in real life this book's practical value makes it priceless.



Summary: Very disappointing given the price
Rating: 2

This is a very handsome book with lovely graphs etc. However I was after a useful summary of historical market performance.

This book was lacking in several respects:

1. The numbers behind the graphs are not provided and are not available so you cannot do any further analysis yourself. The graphs themselves are also drawn in such a way that it is hard to extract the numbers using a ruler.

2. The problem of survivorship bias. They claim that while the 16 countries analysed are an incomplete list (only 70% of world GDP in 1900), this is not a big problem, they feel. Their message that stocks do well in the long run supposedly remains intact, however they do not provide any solid evidence of this. The countries left out of course suffered terrible performance, with total confiscation of assets in most cases and major losses in others.

The countries left out include: Russia, China, Eastern Europe, Latin America. As an example, Argentina was the wealthiest country 100 years ago but was left out. They claim that their criterion for inclusion was the availability of data, but Switzerland was included even though the data is incomplete.

In my opinion, some attempt should have been made to adjust for this problem.

3. No assessment is made of the issue of capital controls etc as an impedement to implementing the world indexing strategy. It is simply assumed that equal dollar indexing could be implemented without any costs, and with no taxes.

All in all, this book fails to provide a realistic and convincing assessment of global investment returns in the real world.

Victor Niederhoffer uses this book to justify his bullishness on stocks, Sorry Vic, no cigar.



Summary: Fun to read in conjunction with Adventure Capitalist
Rating: 4

A lot of work went into this book. But it is scarce on the conclusions side. I know this is deliberate and that the purpose of the authors was just to provide a volume of data with some interpretation but there are just too many loose ends.

First, although much is made of the quality of the data much of the data is from other authors and sources and is used blindly. In other words much of what the authors have done is collation.

Second, there are several countries that ostensibly did better than the U.S and Britain during the twentieth century but little is said about this fact and indeed the authors spend some pages justifying the emphasis on the U.S. and Great Britain during the twentieth century. But the reasons they give are hollow. There may have been justification but greater depth was in order.

Third, although there is a great deal of information in the book several graphs are presented in a confusing manner i.e. the same color line is used for several curves on the same graph making interpretation almost impossible.

Fourth, reading the book is in many places a lot like taking the SAT or GRE graph interpretation section. There is much here but it would have been much more impressive if the authors had drawn some deeper conclusions than was the case. Probably many will attempt to justify this deficiency by stating that the purpose of the book was the assembly of the data in one place and that others will use the data for developing profound interpretations and conclusions. But I don't believe that will happen: the authors understand that the main users of the book will be institutional and personal investors. That is sad for there is much to be interpreted here in a deep and satisfying manner.

Fifth, the authors clearly suscribe to the idea that the data in this book will help readers determine the most likely future returns of the stock markets. But I suspect strongly that William Bernstein is correct and that past returns are best at determining future risks of investing and rather less usefull for determining future returns. The case the authors make for using the data for determining future results is laughable: in essence everybody else does it. The hypothesis may be true but that is hardly a case for it.

Sixth, it would have been fascinating for the authors to have analysed how open some of these societies were during various periods in the twentieth century and related that to investment performance.

Those that believe a CD or soft copy would have been better because of the more detailed access to the data have missed the point entirely.

In the final analysis there is enough data here to keep political economists, sophisticated investors, and many others occupied for many years-if nothing else they can attempt to fill in some of the gaping holes. For instance, many in the U.S. believe that our inflation numbers for several years now are "cooked" to some extent. Certainly this is true for some other countries as well. Yet every bit of the inflation data is presented as the gospel with no challenge or analysis. If the authors did do some analysis here (or even if the primary sources did) and found the "cooking" insignificant or significant then it seems they should have presented their findings in a more complete fashion. Is the data reliable or not? That is the question. This is just one example out of the entire book. Hardly a page goes by without similar questions arising. Too bad the authors could not be bothered to answer any of them

Finally, it is particulary fun to read Triumph of the Optimists in conjunction with Adventure Capitalist.



Summary: Triumph is a Triumph
Rating: 5

Triumph of the Optimists is a terrific resource for those wanting to know more about how different types of investments have performed in different countries over the long term. This information should appeal to a wide variety of readers including investors trying to globally diversify their portfolios, corporate managers trying to estimate their company's cost of capital, and professors and students of finance seeking a more global perspective on the age-old subject of risk and return.



Summary: This is a knowledge bank
Rating: 5

I was keenly looking for a topic that I did not find treated in this book either: some correlation between demographics and the performance of stocks and bonds. As the developed world faces unprecedented demographic challenges with decline of the working age populations, I was curious to see its implications analysed in a historical sense (positive or negative). For, this phenomenon alone may render the historical trends that we have come to rely on, irrelevant.

All in all, this book has made a lasting impact on my investment thought process. Among the many titles that I have read on finance and investing, this is definitely the best. For me, this information bank provided insights and perspective like nothing else.

I disagree with a previous reviewer that this is some kind of a Census Bureau document. Sure, a CD ROM would have complemented its utility (while potentially increasing the cost); but that in no way lowers the utility or readability of this great work. If anything, the book contains a lot of graphs, which is great.