On November 22, 1999 Warren Buffett made an uncanny prediction. He famously warned investors that for the next 17-year period from late 1999 to late 2016 the realistic annualized return would be so so, around 6%. Late 1999 was just a short few months before the final dotcom bubble bursting into flames. In a July 1999 survey, investors with less than five years experience were expecting annualized return of 22.6% for the next 10 years while investors with more than twenty years experience expected 12.9% return. Warren Buffett saw the massive mismatch between the reality and market expectations. On November 22, 2016, the real annualized return of Dow Industrial average from late 1999 to late 2016 was 5.9%.
Warren Buffett made the prediction based on two previous 17-year periods:
1964-1981: Dow went from 874 to 875. Interest rates of long term government bonds went from 4% in 1964 to 15% in 1981. GDP almost quintupled, but equities went nowhere.
1981-1998: Dow went from 875 to 9181. Interest rates and inflation rates both went down. Corporate profits grew unsteadily but nonetheless with real power. Equities increased ten-fold.
Buffett saw the ten-fold return as an outlier. Hence the famous prediction that came true.
Why 17-year cycle? According to Martin Armstrong, economic waves occur every 8.6 years, or 3141 days, which approximately Pi X 1000. At the end of each cycle is a crisis after which the economic climate improves until the next 8.6 year crisis point. 17-year is about twice the wave length of 8.6. It is a confluence point where cycles join together to make a splash.
From the S&P 500 index point of view, the 17-year advance from August 1982 to March 2000 was corrected thru the ABC wave from March 2000 to March 2009. It’s pretty amazing the final correction low was precisely the 61.8% retracement of the 17-year advance at 666.
The massive stock market correction from October 2007 to March 2009 has shell shocked everyone. Seven years later at the end of 2016 the retail investors were still fearful of the market. Presently the retail investor participation in the stock market is still at a 30-year low.
We at pricentime.com encourage our readers to follow the cycles and invest accordingly. The 17-year period from 2009 to 2026 will be good years for equities investors.