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Nice article that challenges the conventional wisdom that "time in the market beats timing the market".

"years of missed compounding cannot be recovered even if subsequent returns normalize to historical averages. Understanding this mechanism is essential for appreciating why lost decades warrant strategic attention rather than passive acceptance."

https://cmtassociation.org/wp-content/uploads/2026...

Not too impressive - it sounds like a young fella with a new ChatGPT subscription who only recently discovered that wow! there are secular bear markets. But doesn't know the difference between a simple average of yearly returns and a CAGR (Exhibit 4). He laments the awful risk of someone seeing a long secular bear market during their accumulation years, citing as evidence the return trajectory of an all-equity index, not noticing that a long bear during your accumulation years would be fantastic, as you'd be buying regularly at low valuation levels. ("3% of 20-year periods delivered negative real returns...outcomes experienced by real investors whose accumulation phases coincided with unfavorable starting points.")

Average broad market forward returns are pretty low starting from unusually high market valuation levels. That's the gist of it: not wrong, but not surprising.

Jim

It sure seems like, reading all that data, that we COULD be setting ourselves up for another lost decade (or more) in not so distant future.

I suppose Berkshire could be a pretty well positioned business for such a lost decade, as long as we make smart acquisitions of course.

I’m probably the only weirdo here with 10-11 years of living expenses in cash, but I can’t seem to shake the idea that we are in for a decade or so of very low real returns. Not that my cash is going to be worth all that much in 10 years, but it helps me sleep a bit better, and I have the fantasy that I will make smart acquisitions myself while the market panics. 🙄

Average broad market forward returns are pretty low starting from unusually high market valuation levels. That's the gist of it: not wrong, but not surprising.

Yes, maybe not surprising to most on this board. But everywhere (else) I look, I see passive investors convincing other passive investors to stay fully invested and not worry about drops, as long as they have a 5 to 10 year timeframe or some such. As if there's some magic magnet pulling total returns back to 10% annualized over 10 years regardless of starting point. I'm sure you're right, that this is not the best article on the topic. But I know a lot of retirees who seem likely to be very disappointed in future returns, so if anyone knows a really great article to show them, please post it.

I suppose Berkshire could be a pretty well positioned business for such a lost decade

Berkshire also had long stretches of little to no return in the past. Take a look at the 1997-2012 period for example. But it's easier to hold (by focusing on intrinsic value) through the inevitable long stretches of anemic stock market returns than almost everything else, including the S&P 500 index.

The emphasis on breadth as a leading indicator of market decline interested me, because I was once a subscriber to the Lowry service on whose work that claim is partly based.

In general, I found Lowry signals too ambiguous and too frequent to be consistently useful, at least for a non-professional like me. But they did point me toward the best single trade of my life. For whatever reason, I interpreted their report of declining breadth in July 2007 as a reason to sell everything. This was at the second to last market high before the coming crash. You don't get many calls like that; though you can improve your odds if you make lots of calls, which is why I finally gave up my Lowry subscription.

But I would be very interested in thoughts about how to measure market breadth in a way that is not so twitchy as to be useless.

Baltassar

Take a look at the 1997-2012 period for example.

True enough.

From average day in 1997 to average day in 2012, 15 years, Berkshire's market price return was inflation + 5.0%/year
Book per share rose inflation + 8.88%/year, so the weak result was all multiple compression.

True for one stocks, true for all stocks: high starting valuation multiples are a bad omen for forward returns.

Jim

True for one stocks, true for all stocks: high starting valuation multiples are a bad omen for forward returns.

💯

There were also some tough stretches for Berkshire where starting valuation was quite reasonable (mid 2000's) and the market return after 7-8 years was close 0% due to GFC in the middle. I was more comfortable with Berkshire during that time than anything else in my portfolio (ex-cash).

Yeah owning Berkshire definitely kept me from selling when things got bad at times, like 2008. Because I *thought* (I really had no idea) the underlying business was still in good shape.

I’m not sure I would have hung on if I owned an index fund.

" There were also some tough stretches for Berkshire where starting valuation was quite reasonable (mid 2000's) and the market return after 7-8 years was close 0% due to GFC in the middle. "


Question of the day for the independent critical thinkers. IF, Buffett had authorized a buyback in 2006 at material discounts to IV, and acted on it, would brk be higher or lower today? Would brk have traded stronger during that time period? Would others have followed Buffett into brks buyback?

THIS, is complicated?

There were also some tough stretches for Berkshire where starting valuation was quite reasonable (mid 2000's) and the market return after 7-8 years was close 0% due to GFC in the middle.

I don't know what you are looking at when you say this. The longest year-to-year price flatness in that time lasted from 2007 to 2012, only 5 years, all other flat or down spots were shorter duration than that. And that one was the famous 2008 market "crash".

R:

Here is an example:

Jan 1, 2002 - Feb 2009 (roughly 0% return over 8 years). Berkshire wasn't particularly expensive in 2002 but it was cheap in 2009.

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