History offers fascinating lessons - the twentieth century was no exception. In the book "Triumph Of The Optimists: The book documents market returns for 16 countries from to From this research, it is evident that three important changes took place in the global stock market in the last century: Unfortunately, understanding the past doesn't necessarily make predicting the markets' future any easier.

Read on to learn what happened in the past century and why some experts say history may not be destined to repeat itself. To the Winner Go the Spoils Unfortunately, until "Triumph Of The Optimists" was published, most of the available historical stock market data for the years prior to was only for the U.

This isn't surprising, since the U. This occurred for a number of reasons, but chief among them were larger investments in physical and human capital , greater technological advancement and greater productivity growth. With its huge investment demand and technological superiority, the U.

To learn more, see What Are Economies Of Scale? By contrast, other countries have lesser-known histories. For example, it took the U.

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Its diminished role after the collapse of the British Empire and the complicated bureaucracies of the colonial system slowed the U. According to the authors, problems with defense spending, labor, productivity and investment plagued the British economy and markets until the mid s.

In fact, the United States' economy largely benefited from the wars - successful companies such as General Motors and IBM thrived as a result.

At the same time, many other economies suffered great losses. For example, according to Phillipe Jorion and William N. The German market also suffered devastating losses. In this context, the U. Past Success and Future Performance Many valuable lessons can be learned from history, but extrapolating historical returns into the future is difficult and complicated. For instance, few investors in could have predicted the monumental changes that would take place in the world after The two world wars, socialist revolutions, the Great Depression and the Bretton Woods Agreement all had a profound impact on the global economy and stock markets until the s.

The impact of these events suggests that although we can study the past, the social and economic events that might affect the markets in the future are often unpredictable. For more insight, see Dollarization Explained and What Is the International Monetary Fund? Furthermore, despite the clear success of the U. The graphs below show a breakdown of the world markets in both and and the anomalous growth of the U. Globalization and Consolidation The stock markets of had more regional exchanges than those of today.

For example, Dimson, Marsh and Staunton state that the U.

Most of these exchanges - such as the Los Angeles Exchange, which dealt with the petroleum industry - focused on the industries prevalent in their areas.

The difference between the number of exchanges in the early-twentieth century and the number that exists today is due mostly to advancements in telecommunications and innovation within financial markets. Advancements like these have propelled the globalization of our economy and its financial markets. Today, New York, London and Tokyo are widely regarded as the world's financial centers, and technological advances have allowed them to be interconnected despite the distance between them.

As a result, the twenty-first century global economy is defined by financial centers rather than smaller regional exchanges. To read more, check out Getting To Know Stock Exchanges and The Tale Of Two Exchanges: Sector Rotation Like You Have Never Seen Before Many investors today focus on short-term sector rotation to add value to their portfolios. According to Dimson, Marsh and Staunton's research, this type of rotation pales in comparison to the changes that can take place over the long term.

Sector analysis of the U.

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Just as a country's influence over global economics evolves, so do the sectors of an economy. As these two tables show, the economies of and had few similarities.

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Of particular note are the sectors that were small in and These sweeping changes also make extrapolating future market performance from past events difficult. Check out Sector Rotation: The Essentials and The Stages Of Industry Growth. Clearly , technological advancements have a big impact on the stock market.

Just as railroads consumed the investing public in the latter part of the nineteenth century, computers and the internet did the same at the end of the twentieth century. For all we know, the dominant sector at the end of the twenty-first century may not even exist today.

Which technologies will have the most profound impact on the world's productivity in the future? In order to successfully invest in these technologies, you will need to predict these changes before they affect the market - a task that is much easier said than done.

Conclusion Can the U. Change is inevitable, but one thing is certain: The incredible advancements in telecommunications have left their mark on the world stock markets, and major centers like New York, London and Tokyo now dominate a once fragmented marketplace. It is easy to refer to the past, but when it comes to your own finances, make sure that your portfolio is structured for the future - in light of all the changes that the markets have undergone so far, basing it on what has occurred in the past may not make sense.

Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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A Look Back By Investopedia Share. If stocks become less profitable in the future, you may have to change your investment strategy. Find out how fixed-income investments evolved in the past century and what it means today. While the company's improved fundamentals are encouraging, Century Aluminum stock has run ahead of itself. Find out how to forecast long-term returns on the three major asset classes. Find out how exchange-traded funds can take the bumps out of your investing style.

American Century Investments should be considered for retirement funds, but economic woes may be guiding us into a dangerous investing environment.

The top-down investment strategy depends on economy and market strength. Find out what you should know before jumping in. Timely rotation of your investments across multiple sectors and regions can yield higher returns.

Here are the basics of investment rotation. Discover three top equity mutual funds from American Century Investments, a privately held asset manager with a very unique ownership structure. Investing in sectors may trump international investments for providing diversification. Learn the history of securities trading, beginning in 12th century France and leading to world financial market centers in Learn about major periods of price deflation in the United States, particularly in the 19th century when dropping prices Read about the early stock exchanges in the United States, how corporations issued their shares through brokers and why railroads Find out how some investors use the economic cycle to develop a sector rotation strategy.

Find out where financial services Understand the effect of World War II on the European gross domestic product and what foreign and domestic factors influenced Learn about what economic indicators are best to examine when investing in the electronics sectors.

This group is very leveraged An expense ratio is determined through an annual A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies.

A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all A legal agreement created by the courts between two parties who did not have a previous obligation to each other. A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over No thanks, I prefer not making money.

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