Bad Times

stock market section in newspaper

Do we have a skewed view of economic history?

Maybe.

The fact is:  In the past 15 years we have seen two historically bad stock market “corrections.”

From 2000-2001 the S & P 500 was down about 21% and in 2008 the S & P 500 was down 37%.

So from 1942-1999 how many years were worse than those two examples above?  During those 57 years stretching from the end of World War II until the end of the century, how many times did the market go down in such a dramatic fashion?

Once.

But that is impossible!

No.  Really.

From 1973-1974 the market was down 40%  (by the way, it was up 37% in 1975).

That’s it.  That is the only time.

I mean, sure, the market was down 10% in 1957 and down 9% in 1962 and down 7% in 1977 and down 5% in 1981.

But to have the market go down dramatically TWICE in the span of 8 years is exceedingly historically rare.

The concept that the market is constantly “crashing” really is not painting an accurate picture of reality.

Yes, two decades were tough in the past 100 years (the 1930’s and the 2000’s).  But the other eight decades basically saw tremendous and consistent growth.

And even those two decades were not THAT bad.

If you invested $10,000 in the S & P 500 in the year 2000, you would have ended up with $9090 in 2010.

If you invested $10,000 in the S & P 500 in 1930, you would have ended up with $9922 in 1940.

Sources:

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html


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 Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index.  Actual results will vary.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

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