What would it mean for the human race if stock markets suffered long-term losses?

Manesova83

Hi all,

As the title says, I was just wondering what long-term stagnation or even losses in the global stock market would mean for society, capitalism, our way of life, and our future.

Apart from the old 'past performance is no indicator of future returns' chestnut, the general consensus is that stock markets should continue to go up - if given a long enough time frame. That's why we all invest in equities, right? I assume this reflects the fact that people are, generally, getting richer, buying more, and being more entrepreneurial and inventive as time goes by.

But what if stock markets have already peaked, and global equity funds will be worth less in 50 years time than they are today? What would that mean for our way of life? I mean beyond the fact that investors would lose money.

Thanks in advance.

poppy10_2

https://www.thoughtco.com/great-depression-pictures-1779916

Alexland

Might be a good opportunity to invest in a baked beans factory?

Uxb

I'd guess a better "investment" might be in an AK 47 and half a million rounds of ammo.

Linton

In principle there could be a massive crash now after which the stock markets do not regain their current valuations for 50 years, but that could well mean that valuations are actually steadily increasing for most of the next 50 years after the crash. So I assume you mean a 50 year ongoing steady decline or at best stagnation.

In that case ISTM that bad things would not happen because of the long term fall in the markets but rather bad things would already have happened and continue to happen causing that fall. For a start investing in new companies could not be seen as a profitable activity presumably because no one is starting new companies. This could imply a global collapse of industrial society or perhaps a global society where industrial activity is totally under government control.

Another aspect to consider is that shares are an asset along side gold, fine art, precious stones, land, antiques, cabbage patch dolls and bitcoin. A continuous fall in asset prices is another way of saying a continuous rise in the value of cash, ie deflation. Under such circumstances any investment becomes difficult to justify as you get risk free gain in real wealth simply by holding cash. Why make the effort?

A last minute thought: unlike many other assets shares have an intrinsic value particularly if they reliably generate cash returns in the form of dividends, a steady cash income must always be worth something. For prices to continuously fall this valuation must have ceased to apply. What could cause this? No profitable companies? Which implies no private companies.

Mr.Saver

Alexland wrote: »

Might be a good opportunity to invest in a baked beans factory?

But if the factory makes money, then it's stock value would go up and/or pay out dividends, so this won't work:rotfl:

Alexland

Mr.Saver wrote: »

But if the factory makes money, then it's stock value would go up and/or pay out dividends, so this won't work:rotfl:

I was planning to buy the baked beans factory for myself and privately own it. I might not own it long if Ubx turns up with their AK 47.

That's probably one of the biggest risks in global equities - if a few of the best companies went private it would deprive the market of a substantial proportion of the returns.

Alex

Albermarle

I guess one result of this scenario is that those of us looking forward to our DB pension paying out , or at least getting 90% from the PPF might be disappointed .:o

System

The Japanese Nikkei 225 peaked on 29th December 1989, but the Japanese have survived and they don't have to eat baked beans. This should be a warning to those who think that stock markets can only go up.

eskbanker

Economic wrote: »

The Japanese Nikkei 225 peaked on 29th December 1989, but the Japanese have survived and they don't have to eat baked beans. This should be a warning to those who think that stock markets can only go up.

Or, as this is something of an outlier when compared with other major indices, it should be regarded as supporting the rationale for diversification?

BrockStoker

Linton wrote: »

In principle there could be a massive crash now after which the stock markets do not regain their current valuations for 50 years, but that could well mean that valuations are actually steadily increasing for most of the next 50 years after the crash. So I assume you mean a 50 year ongoing steady decline or at best stagnation.

In that case ISTM that bad things would not happen because of the long term fall in the markets but rather bad things would already have happened and continue to happen causing that fall. For a start investing in new companies could not be seen as a profitable activity presumably because no one is starting new companies. This could imply a global collapse of industrial society or perhaps a global society where industrial activity is totally under government control.

Another aspect to consider is that shares are an asset along side gold, fine art, precious stones, land, antiques, cabbage patch dolls and bitcoin. A continuous fall in asset prices is another way of saying a continuous rise in the value of cash, ie deflation. Under such circumstances any investment becomes difficult to justify as you get risk free gain in real wealth simply by holding cash. Why make the effort?

A last minute thought: unlike many other assets shares have an intrinsic value particularly if they reliably generate cash returns in the form of dividends, a steady cash income must always be worth something. For prices to continuously fall this valuation must have ceased to apply. What could cause this? No profitable companies? Which implies no private companies.

So what is the best way to protect against something akin to the great depression, if that kind of scenario were to happen again?


https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart


Looking at the chart above, if you had invested in 1929, then you'd have to wait 20+ years for your investment to recover to it's initial value. The general advice is a minimum investment horizon of 10 years for equities, but in this case you'd be out of luck if you wanted your money back after 10 years, or 20.


Would it have helped much if your investment was more diversified than just investing in the DJI? My own plan up till now has been to hold some cash (to be able to buy in the dips, and help speed up the recovery of my investment value), but I've always avoided bonds/gilts.



What would you say to someone who is new to investing and worried about this kind of event even though they have a 20+ year investing horizon?