The 5 realities of Markets
By Robb Lovell, MBA
- One - Markets will go down from time to time
Yes, this seems basic but in times of volatility, investors seem to only see the down side or the potential for downside.
Markets have gone up 73.9% of the time;
Markets have gone down 26.1% of the time;
Markets have gained more than 20% in 33% of the time;
Markets have lost more than 20% in 4.5% of the time;
Gains in positive years outweigh losses in negative years by more than double. (This is based on TSE results from 1920 to 2010)
- Two - Markets typically rebound after down years
If we look back over 55 years, the markets have only had two back to back negative years 3 times in history (1974, 1970 and 1953).
- Three - It’s the same thing, only different
The current stock market volatility is fostered and driven by the “US debt crisis”. There has, historically, been some reason for a market setback and these setbacks occur regularly:
In 2008, it was the global financial crisis
In 2001, it was the technology bubble
In 1973, it was the Oil Crisis
In 1962, it was the Cuban missile crisis
- Four - Markets move randomly short term but are predictable in the long term
Especially in volatile times, the markets’ movement can be all over the place but, in general, over the long term, we know that markets tend to go back up and exceed their previous highs. It is just a matter of how long it will take to get there.
- Five - Market Corrections and Bear Markets Create Opportunities
This is perhaps the most salient point. Since recoveries normally follow corrections, we know that a market correction is normally a great time to buy into the market.
We hope this article helps provide some perspective on the big picture. Any questions, as always, just call the office.