Do Recent High Stock Returns Mean Low Returns are Coming?

There’s nothing quite like looking at the data. I regularly run into people who say they’re betting that stocks are going to crumble because they’ve done so well since 2009. I ask for the data backing the statement, and they don’t any much. Here’s a thorough article addressing the question. The answers aren’t simple or straightforward. In general, even over the next five years it is tough to draw conclusions about what returns will be after years of strong returns. Over the next 10 years the returns are in a tighter range, but it still isn’t a tight range and isn’t something you should use to determine today’s positions.

What this tells you is that if the previous 5 years of performance was between 15-20%, the average of the following 5 years was over 13% annually. Not really what you would expect, right? As a reference point, the average 5 year return was 9.7% annually. But it’s worth pointing out that there is a wide range of returns from the best to worst. Over any 5 year period, the results can be all over the place.