After an 11-fold rise over roughly 15 to 16 years, what does the S&P 500’s past performance prove about buying today at a reported valuation of 40?
It establishes what passive investors earned, not what the index will deliver over the next 15 years. The exceptional trailing gain may help explain why today’s starting price is demanding and why unquestioned extrapolation is harder to defend.
Historical Comparisons Warn, but Do Not Forecast
Today’s reported valuation of 40 is placed beside 44 during the dot-com bubble, after which the S&P 500 declined 47%. Real returns are also said to have fallen 60% in the ’70s.
Neither comparison is a forecast. The valuation measure is unidentified, and nothing establishes that today will reproduce either period.
Passive and Active Investors Bear Different Uncertainties
Passive investing offers a genuine advantage: it delegates the work and allows investors to focus elsewhere. That matters when the cited claim is that only 4% of investors beat the market.
Trying to join that 4% requires substantially more work, with no assurance of a better result. Active investors need more than confidence to justify that additional burden.
The choice is not between certainty and uncertainty. Passive investors accept the index’s price. Active investors accept more work and the risk that it will not pay off.