It’s the question every investor wants answered: how long will it take the stock market to recover?

Last week, professors Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School offered an answer when they published their Global Investment Returns Yearbook with investment bank Credit Suisse.

History offers a patchy guide. After the 1987 crash, global investors recouped their losses in just two years. Even after the 1973–74 bear market, when the UK market fell 73% in real terms, it took the All-Share index fewer than three years to regain its previous high, though after inflation it took eight years.

Investors can draw less comfort from the Great Depression, however, when it took US stocks until 1949 to rise decisively above their 1929 pre-crash high in real terms.

And the Japanese stock market is 67% below its 1989 high in real terms, with little prospect of recovery.

London Business School took as its starting point the fact that shares have historically returned 3.5% more than cash. On this basis, the FTSE 100 has a 50% chance of regaining its previous high (6,930 in December 1999) by 2019. If dividends are included, however, there is a 50% chance of it getting back to its peak by 2014.

Marsh said: “These estimates are simply probabilities. We may be lucky: there may be a speedy rebound, and recovery may be faster than is portrayed. But there could also be a lengthy Japan-style era, in which markets do not recover for a long time.”

However, he pointed out that certain assets could help investors to regain previous highs more quickly. Investing in smaller UK companies would have given you an additional 2.3% return every year since 1955 — although of course you would have been taking a greater risk.

Similarly, investing in so-called “value” stocks — those that trade on a low multiple of their earnings, dividends, or book value — would have delivered an additional 1.5% a year.

Some of the country’s best funds managers, including Neil Woodford, who runs Invesco Perpetual’s Income and High Income funds, follow a “value” approach. For Woodford it seems to have delivered: the Income fund is up 145% over the past 10 years and his other fund is not far behind.

The report, while recognising that investors have suffered savage losses on the stock market, urges them to keep faith.

Marsh said: “Equity investors can expect to be more than 40% richer relative to investing in cash over a 10-year horizon, and twice as rich over 20 years.

“While investors should keep faith with stocks, they should not harbour fantasies of an immediate return to either previous (and, with hindsight, unrealistic) market levels, or to previous high rates of return.”

“We were spoiled by the high returns of the 1980s and 1990s, when equities seemed a sure-fire route to getting rich quickly. Today, as we look ahead, while we should expect to enrich ourselves from equities, the process is likely to be one of getting rich more slowly.”

Advisers said the report confirms investors should check they have the best assets for their attitude to risk.

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