Comment on Chapter 3

 'If dividends are not included, several stocks fell by as much as 47.8 per cent in those two years.'By the 1840s, these indices had grown to include as few as seven financial stocks and 16 railroad stocks—even today an absurdly unrepresentative sample of the buoyant young American stock market.See Jason Zweig's article 'New Cause for Caution' in Time magazine, May 26, 2002, page 71. Graham points out that stock indices between 1871-1920 also suffered from 'survivorship bias.' Hundreds of automobile, aviation, and radio companies collapsed without leaving a trace. These returns, too, are probably overstated by one to two percentage points.'By the 1840s, these indices had grown to include as few as seven financial stocks and 16 railroad stocks—even today an absurdly unrepresentative sample of the buoyant young American stock market.See Jason Zweig's article 'New Cause for Caution' in Time magazine, May 26, 2002, page 71. Graham points out that stock indices between 1871-1920 also suffered from 'survivorship bias.' Hundreds of automobile, aviation, and radio companies collapsed without leaving a trace. These returns, too, are probably overstated by one to two percentage points.Of course, the cheap stock price did not mean that investors' expectations of a 7 percent return from the stock would be met.3 See Jeremy Siegel, 'Stocks for the Long Run,' (McGraw-Hill, 2002), p. 94, and Robert Arnott and William Bernstein, The Two Percent Dilution Working Paper, July 2002.

Figure 3-1

1.5% to 2%

+2.4%

+1.9%

= 5.8% to 6.3%