Tuesday, July 31, 2012

Dow Jones Industrial Average since 1900

Barry Ritholtz links to this awesome chart from J.P.Morgan. It tells us so many things when you look at real long term. Have a look and my comments are below this:

The graph tells us so many things:
  1. Before anything else, I must highlight that the average line for 1937-49, 1966-82 and 2000- present are drawn wrong. They have a positive bias. 1906-24 seems to have a negative bias.
  2. More importantly, we seem to have ~20 years of stability and ~20 years of secular bull runs. By that measure, somewhere after 2015 we will see the start of the next bull run.
  3. But we must correlate these with actual developments. If you draw some key developments on the charts we will see better picture. 
    • Periods of technology development
      • 1930s and 1940s period signifies the development of US highways and railroad. This is phase where Americans were still exploring new frontiers within their country.
      • Similarly 1966-82 period was time when computing technology was taking shape.
      • Similarly, 2000- present internet technologies are taking root.
    • Productivity increase periods. These periods are different from technology development periods. Here known technologies are being exploited to create new thresholds for efficiency and productivity. Concurrently, new technologies are being incubated but those are not the dominant forces as yet.
      • 1949 onwards was post war reconstruction. Here known things were required to be produced in ever increasing numbers to satisfy the demand in Europe and Americas itself.
      • 1982 till 2000 was a period when IT came of age. Computing allowed wider management control, better designs, higher efficiency etc.

Overall quite an interesting chart. What do you think?

update: I made a appalling mistake of commenting on exponential line which I have deleted. The graph is in log scale.