In 1987 the S&P 500 was up 2.0% for the year. That was obviously the year that the stock market crashed.
On November 30, 1992 the S&P 500 was at 431.35. Ten years later it was 936.31, a 117% gain. I picked November because that is when some say the SPX bottomed after the tech crash.
From 1968-1981, a particularly dark period for domestic equities, there were six years of double digit gains. That is the same number of double digit years in the 1990's, the greatest decade ever for equities. Point conceded that I am comparing a 14 year period to a ten year period but still.
On August 21, 1996 the S&P 500 closed at 665.07. As I write this it is at 1297.48, a 95% gain.
In 1989 the S&P 500 was up 27.3%. Do you even remember the mini crash on October 12 of that year? The market fell 6.1% as the UAL LBO unraveled.
If you bought the S&P 500 on October 15 1987, the market actually fell about 5% the day before the crash, at 298.08 you were back to even on a closing basis on February 7, 1989. It took less than 16 months to break even from the worst crash since the depression when buying at about the worst time possible.
On October 27, 1997 the S&P 500 fell 6.8% because of the Asian Contagion. It was back to pre-contagion levels seven trading days later.
The market dealt with more serious matters in 1998 with the LTCM blowup and the Russian debt crisis. In that go around the S&P 500 fell from its July 17 peak of 1186.75 to a low of 959.44 on October 8. That was a 19% decline in less than three months. The market closed at 1186.76 on November 25. It took back the 227 points in about six weeks.
How long is your portfolio's time horizon? These numbers show horrible events in the market are quickly recovered most of the time. The 1930's and the 1970's (mentioned above) stand out a two exceptions.
For all anyone knows this decade may be like both periods. If so there could be some huge up years mixed in. Don't get so scared that you miss huge up years. As an idea, raise some cash after an up 30% year.
Too many people focus on the wrong thing, the short term. If you need the money in two years, equities are the wrong asset class. If you need the money in 20 years, equities are the right asset class. The market is higher ten years out the vast majority of the time.
If you own stocks keep in mind that the things noted here are the back drop to what you need to deal with and that the short term has less importance.
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11 comments:
so did you copy this from RealMoney or did they copy this from you???
Are you kidding?
I write for for Real Money. It is my post here and on Real Money both published within a few minutes of each other.
As it is my original content I can and sometimes do post the same content on this blog and in the columnist coversation feature on Real Money.
:-) ... Its good to see that Roger doesn't get provoked easily. That probably explains his un-emotional response and comments to market events.
If the one at 1:49 is not a heckle then TY.
If it is a heckle, well-played(insert smile).
Good points, good humour, good temperament. BUT, we're in a new era-the degree and probability of risk is sooo much greater. My own rebuttal is that every decade plays the same song about the sky falling. This one is hard to shake. Maybe it's because I'm an aging babyboomer. And, to be fair to history the pre 80s era mentioned put a lot of people in a world of pain. I can think of one fund manager, Ralph Wanger( a mngr's mgr and elder stateman of sorts), warn about a repeat of that time period where for ten years, our mkts will be volatile and go largely no where.At least that was my read of him when he explained the rationale for a new fund, The Thermostat fund.I do not think the answer is to put money under the mattress, but I'm still searching. Short ETFs, and intl equity and currency expsosure are tools I want to have at hand. The prospect of bear rallies do not calm me. Look at Japan's 15 yr plus recovery period and the Nasdaq is still not at the halfway mark back to its high. ps: what does the host do when he does get provoked, anyone ever see it? OTIL
ignorance alert!
what does OTIL mean?
me provoked? life is too short.
I think we just did. It's your party.
I rekmember '87. The local Baird office had a sign out front that showed the day's Dow close and the number of points up/down. The sign could display TWO digits of up/down change. Though now they are almost routine, nobody expected a three digit Dow day in '87.
Fred
Roger,
Its the 1:49 PM anonymous again. My comment was intended to be a compliment for your cool temperament. But now that I read my comment again, I see that it could be construed as a "well-played" heckle. :-).
The way I'm playing the market in near term is to have some long positions hedged with short index etfs, and use the volatility to make quick swing trades. Would feel more comfortable taking a longer term position after the trend gets set and market settles down a bit from here.
I'm bullish gold, because of seasonality and a belief that dollar has to get weaker. Do you have any opinion on precious metals? Do you prefer currencies like FXE over precious metals?
Thanks for your insights. I have been a recent reader, but its my first time to post comments.
Most places I see it the period is cited as 1966-81 but basically the market, as measured by the Dow but basically fitting the broader market, went nowhere. It was at exactly the same 1000 as in 1966. With dividends there was probably a small positive return. The key though was that adjusted for inflation the 15 year return was negative. A lot of middle aged people towards the end of their savings period got awfully burned in that their acculated savings to date in 1966 did nothing for them for 15 years.
Cue 2006. A lot of baby boomers with perhaps 2/3 of their lifetime savings already behind them (ie accumulated and invested) are counting on compounding returns on their current savings and investments to cover their retirement needs. But what if from 1998 or 2001 we have been in a similiar period to 66-81. A lot of people are not going to be able to retire if their "real" returns after inflation are negative on these funds.
Good.
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