When all the information was analyzed, the Triumph of the Optimists
concluded “that the US experience of equities outperforming bonds and
bills has been mirrored in all sixteen countries examined.... Every coun-
try achieved equity performance that was better than that of bonds.
Over the 101 years as a whole, there were only two bond markets and
just one bill market that provided a better return than our worstper-
forming equity market.”
Furthermore, “While the US and the UK have indeed performed
well,... there is no indication that they are hugely out of line with other
countries.... Concerns about success and survivorship bias, while legit-
imate, may therefore have been somewhat overstated [and] investors
may have not been materially misled by a focus on the US.”19,20
This last statement is significant. More studies have been made of
the U.S. equity markets than the equity markets of any other country in
the world. Dimson, Marsh, and Staunton are saying that the results
found in the United States have relevance to all investors in all countries.
The superior performance of U.S. equities over the past two centuries is
not a special case. Stocks have outperformed fixed-income assets in
every country examined and often by an overwhelming margin. Inter-
national studies have reinforced, not diminished, the case for equities.
CONCLUSION: STOCKS FOR THE LONG RUN
Over the past 200 years the compound annual real return on a diversified
portfolio of common stock is nearly 7 percent in the United States, and it
has displayed a remarkable constancy over time. The reasons for the per-
sistence and long-term stability of stock returns are not well understood.
Certainly the returns on stocks are dependent on the quantity and qual-
ity of capital, productivity, and the return to risk taking. But the ability to
create value also springs from skillful management, a stable political sys-
tem that respects property rights, and the capacity to provide value to
consumers in a competitive environment. Swings in investor sentiment
resulting from political or economic crises can throw stocks off their
long-term path, but the fundamental forces producing economic growth
enable equities to regain their long-term trend. Perhaps that is why long-
20 PART 1 The Verdict of History
(^19) Elroy Dimson, Paul Marsh, and Michael Staunton, Triumph of the Optimists: 101 Years of Global In-
vestment Returns, Princeton, N.J.: Princeton University Press, 2002, pp. 52–53 and 175.
(^20) In fact, Triumph of the Optimistsmay have actually understatedlong-term international stock returns.
The U.S. stocks markets and other world markets for which we have data did very well in the 30
years prior to 1900, when their study begins. U.S. returns measured from 1871 outperform those re-
turns taken from 1900 by 32 basis points. Data from the United Kingdom show a very similar pattern.