Historical Patterns In The Long-Term Stock Market by James G. Arnold
Stock markets have been around a long time, and historically, markets demonstrate some well-defined patterns. At some levels of averaging, one is even tempted to call the long-term market "predictable." I use statistical analysis to reduce more than 100 years of market data to a simple mathematical model. I've sought to identify the important patterns and examine their significance. Understanding the cycles and trends of "markets past" should allow you to become comfortable with the market.
Prices do not stay in line with value, and that is precisely what makes a stock market. Sometimes they are
too high and sometimes they are too low, but they do swing around value and—over the very long
haul—prices will average out to value. Price is simply a number upon which buyer and seller agree.
Value is what a thing is worth. Over the very long haul, value will be recognized.
I use the Standard & Poor's 500 stock index for my model. Although this index measures
high-capitalization stocks, it is value weighted and it does sample a reasonable fraction of the entire
market. Data exist to trace the S&P 500 average back into the past century.