The Lost Decade
As 2009 comes to a close the Dow Jones industrial average stands at 10,428. That is down from 11,497 on December 31, 1999 – yep, ten years and no gain.
The S&P 500 has declined 23 percent since the end of 1999, its first drop for a decade since the 1930s. Including reinvested dividends, investors lost 0.9 percent a year since 1999, the first decade of negative annualized returns in the index’s history stretching back to 1927, according to S&P analyst Howard Silverblatt as quoted in Business Week . The Wall Street Journal  puts it this way “Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress.”
What does this mean for business appraisers looking at equity risk premiums? Bloomberg documents that there was no global equity premium over the 30-year period 1979–2009. Since 1979, a strategy of buying 30-bonds has outperformed the strategy of buying stocks and reinvesting the dividends. It may be time to do some serious reexamination of our valuation assumptions.