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FA Center: As stocks wobble, the March 2000 Nasdaq top is a harsh reminder that the long run isn’t always your friend

The top of the Nasdaq bubble in March 2000 seems like ancient history, but those who overlook it miss out on a valuable investment lesson.

The Nasdaq Composite

closed on March 10, 2000 at 5,048.60. By October 2002, the index was at 1,114.11 — a decline of 77.9%. (The broad U.S. market topped on Mar. 24, 2000, when the S&P 500


In the chart above, notice that in March 2020 — two decades after its peak — the Nasdaq in inflation-adjusted terms was still lower than where it had been at that top.

This teaches a valuable of investment lesson: The stock market doesn’t always produce handsome returns even over periods that many would consider the very long term. Since the top of the internet bubble, the Nasdaq has produced an annualized real (inflation-adjusted) return of just 1.8%. That’s far lower than the U.S. market’s 200+ year average.

A two-decade period in which stocks lose ground to inflation is a scary prospect for those whose retirement financial security is predicated on stocks doing significantly better. To illustrate, imagine an investor in her mid-40s, 20 years prior to expected retirement, who follows standard financial planning advice and has the bulk of her portfolio invested in equities. What would it mean to her retirement if the portfolio at age 65 is lower in real terms than it is currently?

Losing to inflation

Scary as that prospect is, it isn’t even close to being the worst stretch of stocks not beating inflation. According to research conducted by Edward McQuarrie, professor emeritus at the Leavey School of Business at Santa Clara (Calif.) University, the S&P 500 in real terms was no higher in 1984 than it was in 1909. That’s a 75-year period in which this benchmark posted a negative real return.

To be sure, this 75-year period of staying even with inflation is focusing on the price-only version of the S&P 500, which does not take dividends into account. But even when including dividends in the calculation, it’s still the case that the stock market periodically endures extremely long periods of just keeping pace with inflation. McQuarrie refers to these periods as “doldrums,” defined as “an interval longer than ten years where the real total return on stocks comes in below +1.0% annualized.” Defined in this way, there have been six doldrum periods since 1793.

Another statistic really drives home the point that long periods of mediocre performance are not out of the ordinary: Of the 229 calendar years since 1793, 101— 44% — have occurred in one of these six doldrums identified by McQuarrie. That’s nearly one every two years, on average.

Most investors are in denial about this part of U.S. market history, either ignoring it altogether or believing that it’s irrelevant to what the future holds. The extraordinary bull market of the past decade has spoiled investors into thinking that spectacular gains, year in and year out, are to be expected. Yet assuming the future is even remotely like the past, they sooner or later are in for a very rude awakening.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at

More: Prepare for a recession this summer, a bear market in real estate and a drop in stock prices, warns strategist David Rosenberg

Also read: 10 highest-yielding Dividend Aristocrat stocks for uncertain times as interest rates rise and economic growth slows

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