Credit Suisse Global Investment Returns Yearbook

One of the comments to last night’s mention of Societe Generale presentation by James Montier & Albert Edwards suggested that ALL big firm research is worthless. (What are they selling? How to keep your commission coming in when everyone else is going down?).

Don’t overgeneralize. One of the keys to successful investing is recognizing the talent that can make you money, or at least keep you out of trouble, and figuring out what to ignore. If the big firms’ research was all incompetent/biased/corrupt it would be easy. But its not, there is lots of great work by very smart and experienced people. The trick is figuring out what to use and what to ignore.

You must be open minded and intellectually flexible; don’t let your biases steer you away from something of value.

A perfect example: Credit Suisse has a great Macro research piece out — its a huge overview of the global markets, laden with all sorts of chart p0rn. I don’t agree with everything in it, but it has plenty of worthwhile data and commentary:

“What should we expect from equities? To answer this requires a long-term perspective. A week may be a long time in politics, but even a decade is too short to judge stock returns. Some
decades are depressingly poor, while others are tantalizingly good. To understand equity returns, the long term must be long indeed. Fortunately, the Yearbook database meets this test with 109 years of data for 17 countries that together represent some 90% of world stock market value.

The last decade has been the lost decade. The 21st century began with a savage bear market. By its nadir in March 2003, US stocks had fallen 45%, UK and Japanese equities had halved, and German stocks had fallen by two-thirds. Markets then staged a remarkable recovery, only to plunge again late in 2007 into another epic bear market fuelled by the credit and banking crisis. Since 2000, the MSCI World index has lost a third of its value in real (inflation-adjusted) terms, while the major markets all gave negative real returns of an annualized –4% to –6%.

The demons of chance are meant to be more generous than this. Equity investors require a reward for risk. At the end of 1999, investors cannot have expected, let alone required, a negative risk premium from equities, otherwise they would simply have avoided them. Looking at the nine years that followed does not tell us that risk premiums have decreased, but just that investors were unlucky. Indeed, they received a savage reminder that the very nature of the risk for which they sought a reward means that events can turn out badly, even over multiple years.

I don’t know if it was intended to be public, but the link to download the PDF requires no password.

Expect to see a few charts therein showing up here later . . .


Thanks, Brian!

Global Investment Returns Yearbook 2009
Credit Suisse, February, 2009

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