Since 1870, UK equity returns, after inflation, have been between zero and 10 per cent in 38 years - 27 per cent of the time. In 63 years - 45 per cent of the time - they have been between minus five and plus 15 per cent. On only five occasions - 3.5 per cent of the time - have they been worse than minus 20 per cent.
Most of the time, then, we get neither disaster nor boom but just dull mediocrity - slightly positive or slightly negative returns. Just as most medical complaints don't kill us, so most problems with the world economy - and there are plenty - aren't fatal for investors.
This in turn implies that well-calibrated forecasts will, most of the time, point to modest returns. Sure enough, this is the message of two of the better leading indicators of returns. While foreign buying of US equities predicts slightly negative returns, the US consumption-wealth ratio predicts slightly positive ones.
All this tells us to be sceptical of doom-mongers, for two reasons.
First, there's a danger of falling into the error of base rate neglect, forgetting about basic probabilities. It's easy to believe stories of inflation, crisis and recession because they are so vivid - and because they loom large in our memory. But vividness is no guide to probability. Base rates, the distribution of past returns, tell us that while disaster is possible, the more likely probability is that we'll muddle through.
Secondly, forecasters of disaster walk a thin line. On the one side, they perform the useful task of reminding us of risks and uncertainties. But, on the other side, they can be mere attention-seeking. Forecasts of bad times - and for that matter of very good ones - make for an interesting read. But the reality is more often much duller than the stories.
