STocks-for-the-long-run type charts often show the wonderful growth story of the US market. Sometimes the United Kingdom can be included.
However, our great European enemies Germany and France are hardly mentioned.
This is partly because our cultural dialogue is dominated by the USA.
But it’s also since the stock market history of the continental markets is just not a very good indicator for investments. In fact, I think that if long-term US stock returns were much like those, investing wouldn’t be nearly as popular because it is within the Anglosphere.
So let’s turn to our closest neighbors to search out out what a hot stock experience looks like.
(All charts show inflation-adjusted total returns, expressed in local currency.)
German stock market returns
Data from JST Macro story And MSCI. March 2024.
- Average real annual return = 4.0%
- Cumulative growth of 1 DM/Euro = 426.7
- Best annual return = 149.7%, 1923
- Worst annual return = -90.0%, 1948
- Volatility = 31.4%
The German graph looks remarkably much like the British experience, with three key exceptions. Namely, the hyperinflation of the Twenties, the aftermath of World War II and Germany’s comparatively smooth run within the Seventies.
One cannot help but stare in wonder on the priapic surge brought on by the stock market frenzy that accompanied the hyperinflation of 1921-23.
We all heard in regards to the wheelbarrows stuffed with worthless money in Germany back then. In this climate, the stock market was a rare place where one could protect one’s wealth – no less than temporarily.
Even after inflation, the market rose 722% between 1921 and 1923. It then imploded – falling 92% over the following two years.
By 1931, within the midst of the Great Depression, the index had declined by 50 years and last reached the extent of 1881.
The war was hammering
From that low point, stocks rose by double digits for five consecutive years. At this point the Nazis were firmly in power.
After a slight fluctuation in 1938, markets again moved in line with German tanks from 1939 to 1940. Stocks were largely domestically owned and the 30% increase in 1940 testifies to the series of victories won on the battlefield.
The market continued to rise even when the Germans were stopped outside Moscow. But then the Nazi government imposed a floor on share prices from 1943 as the corporate’s situation deteriorated. This move essentially resulted in prices being frozen for the rest of the war. Traders refused to purchase stocks held within the air by artificial gravity.
The staggering 90% decline in 1948 was accompanied by an appreciation of the German currency to 10% of its previous value.
At this point, German stocks were value 33% lower than in 1871.
So much for “stocks in the long term”.
The only way is up
However, this uncompressed misfortune was followed by a 121% rebound the next 12 months because the post-war era took hold.
By 1958, for those who had bought into the German market in 1948, your shares would have gained 2021%.
How many individuals could or would have done that? Vanishingly few, I think.
Elsewhere, Britain’s worst stock market crash was yet to return. Our home market experienced a 72% decline from 1973 to 1974.
In contrast, the German market only fell by 24% over the identical period.
And for those who look back 50 years, the common annual return in Germany is 5.9%. This compares to six.2% annualized within the UK and seven.1% within the US.
Nevertheless, the catastrophic German war experience has left its mark on the country’s relatively subdued overall market return, which stands at 4% annualized over the very long run.
French stock market returns
Unfortunately, because the French chart shows, there are other ways besides defeat in war that result in the downfall of the stock market:
- Average real annual return = 1.2%
- Cumulative growth of 1F/Euro = 6.58
- Best annual return = 115.9%, 1954
- Worst annual return = -46.0%, 1945
- Volatility = 21.8%
Japan is the cautionary tale that experienced investors often use to scare the youngest – but it surely ought to be France.
Unlike Japan, the French market remains to be 33% below its World War II peak some 80 years later.
French stocks lost 96% of their value between 1942 and 1950. But the decline didn’t stop there. The market continued to collapse for an additional 27 years until 98% was lost from peak to trough.
Paradoxically, after World War II, the French economy and other people experienced a 30-year boom – a period that became generally known as.
But the advantages weren’t felt by French investors.
Earnings were hit by nationalization of industry and high inflation. It was not until 1983 that the market was brought back to life through Mitterand’s economic reforms.
At this point, the stock market had been a disaster zone since 1914. This long era of investor woes has given French stocks a bond-like long-term annual return of 1.24%.
Yes, during the last 50 years, French stocks have recovered to a superbly respectable 5.3% on an annual basis. Nevertheless, I still imagine that the Gallic experience is the perfect antidote to hostility that one can imagine.
The downturn in Germany and Japan is a clearer example of investment risk.
However, France’s lost years show that equity gains don’t necessarily come from economic success (something we have now seen again recently in certain emerging markets).
UK and US stock market returns
In contrast, listed here are the expansion charts for UK and US stocks:
Real total return data from JST Macro history And FTSE Russell. March 2024.
- Average real annual return = 5.3%
- Cumulative growth of £1 = 2,521.55
- Best annual return = 103.4%, 1975
- Worst annual return = -57.0%, 1974
- Volatility = 17.5%
Data from JST Macro history And Aswath Damodaran. March 2024.
- Average real annual return = 6.8%
- Cumulative growth of $1 = 24,640.33
- Best annual return = 60.9%, 1933
- Worst annual return = -41.0%, 2008
- Volatility = 18.4%
International long-term returns
And for completeness, here’s how our foursome compare when plotting all of them on the identical chart:
I ponder what number of persons are selecting an S&P 500 ETF given the overwhelming US performance?
Especially after the recent stunning results from US stocks.
Or how a few bet on the Nordic Tigers Sweden and Denmark? They have delivered US-level returns during the last 150 years.
Me? I do not believe any regime can last eternally, so I’ll follow my global tracker fund.
Be calm,
