Why Are Stocks So Risky?


The brief’s key findings are:

  • Stocks have diverged from historic averages for periods of 10 to 20 years.
  • This divergence reflects fluctuations in: 1) corporate earnings; and 2) investors’ assessments of those earnings.
  • Corporate earnings vary, but tend to stabilize and return to long-term economic trends within a few years.
  • In contrast, investors’ valuations have been more volatile, taking decades to fully stabilize.

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