I’ve used the phrase “invest for the long-term” on numerous occasions and this is for a good reason. In the short run, almost “anything goes”, making it hard to predict market returns. The difficulty arises because investors are trying to sort out the implications of news, be it economic, political, or policy. Digesting news takes time. This is complicated by the fact that there are investors who trade short-term for liquidity or speculative reasons and not because of economic fundamentals. As a result, returns measured over days, weeks or months are extremely “noisy”.  This is why to understand risk and return, we must examine long periods of history.

How long is long enough? That is a hard one to answer. Suffice it to say that even over periods as long as 20 years, we can still observe “unusual” returns. The period from 2000 to 2016 is a good example. According …