On 14 January, Nick Magiulli who runs the blog Of Dollars and Data published a post titled The Investor’s Fallacy. In it, he shows nicely that prior 10-year returns of the S&P 500 have almost no correlation with future 10-year returns (he calculates a slightly negative correlation of -0.19). But then he produces a chart that I have copied in below. In this chart the trailing 20-year return of the S&P 500 (total return in nominal terms) has a significantly negative correlation of -0.83 with future 10-year returns.
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The investor’s fallacy – A comment
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On 14 January, Nick Magiulli who runs the blog Of Dollars and Data published a post titled The Investor’s Fallacy. In it, he shows nicely that prior 10-year returns of the S&P 500 have almost no correlation with future 10-year returns (he calculates a slightly negative correlation of -0.19). But then he produces a chart that I have copied in below. In this chart the trailing 20-year return of the S&P 500 (total return in nominal terms) has a significantly negative correlation of -0.83 with future 10-year returns.