Investors in most countries make the mistake of measuring their returns based on their home market and their domestic currency. This might have worked when they only had access to their local investment market. But that time is long gone. Now we have a global economy and most Westerners have access to securities worldwide. Still, in for example Germany, the UK or Japan, investors measure returns in their local currency. Even more so in the US. Due to the size of the US economy and the importance of the dollar, few Americans look at investment markets or currencies in other countries.

US stocks – Poor performance and overvalued

Recently a reader commented that I personally have not considered the US stock market as a good place to invest and therefore missed a massive opportunity. Let me state that for many reasons the US market has not been a good place to invest. Firstly, I consider a market which is greatly overvalued as high risk and therefore best to avoid even if it can go higher. It is of course totally right that someone who sold the US stock market in 2000 bought back in 2002, got out in 2007 and invested again in 2009 could have made a lot of money. But that is not the way the average investor trades except for in hindsight.

There are two main types of investors. The most typical investor seldom sells and therefore rides through every storm in the hope that stocks go up perpetually. That theory has worked wonderfully for long periods in the last 100 years. There have of course been periods of severe exceptions like after the 1929 crash and the 1932 bottom. Investors at that time had to wait 25 years to get their money back.

Then there are investors who trade the market regularly. Many of these buy high and sell low thus continuously underperforming the market.

S&P’s abysmal real performance

Overall stocks have been a great investment for the last 100 years due to the massive credit expansion and money printing worldwide. But if we, for example, critically analyse the real return for a US stock investor who has been long the S&P index since the beginning of this century we get some interesting results: