Lost decades are burst bubbles, essentially. In the stock market, lost decades manifest as long periods with low returns. They begin with a serious decline, and end in apathy. Similar behaviour occurs in other asset classes like real estate, precious metals, and collectibles — any asset that can be loved to death.
Y OU find lost decades between major upmoves. After a big bull market falls to earth, prices trade up and down — but they make no long-term progress. Think of the 1930s and 40s, or the 1970s, or Japan since 1990. Because they deliver poor long-term returns, lost decades are lousy times to buy and hold. Instead of decent gains, investors get diddly-squat.
First they fall
Lost decades begin at the top of the mountain, looking down from an astonishing height. In most cases, the first move in a lost decade is to fall off the edge. Once at the bottom, the market then clambers back up. It even tries to climb to a new elevation. But it’s no use. From here, there’s no traction, and the market moves one step forward, one step back, for years on end.
Then they crawl
Once it gets under way, a lost decade persists far longer than anyone expects. First, conditioned by the lengthy boom prior to the crash, many investors expect good times to return after the crash ends. Indeed, the initial rebound seems to confirm a recovery.
Then a series of false starts and setbacks baffles investors and erodes their confidence. Humiliated and bored, the army of optimists massed at the market’s edge pulls up stakes. A period of stagnation begins. Finally, when most investors no longer believe in stocks, the lost decade ends.
Ten, fifteen, even twenty-five years of nothingness, lost decades are a Wall Street secret. Nobody cares to talk about them, because when the stock market trades sideways, money leaves the market. It leaves in fright, it leaves in boredom, or it’s needed at home. Wall Street simply can’t afford that. Nobody can. It always seemed better not to talk about lost decades, actually. Besides, you were going to find out anyway.
Why They Hurt >