After one of the worst endings to a year in stock market history, it’s easy to despair and bash the market. When the stock market is collapsing, it’s hard to take the long view and be optimistic. But if you do, you’ll soon realize that the U.S. stock market is generally a friend to investors.
We have good data on the U.S. stock market since 1926. For those 92 years, including 2018, the stock market has been negative for a calendar year only 25 times. That’s using the Standard and Poor’s 500 as a measure for the stock market and including dividends. Of those 25 negative years, 15 years, including 2018, had losses of 10 percent or less. In 6 of those years, the market declined by less than 5 percent. In only 3 of the 92 years has the S&P declined by 30 percent or more. Only 4 times has the market declined for a second consecutive year.
The 4 bad times — with two or more consecutive years of losses — were during the Great Depression (1929 to 1932), the start of World War II (1939-41), the deep recession in the 70s after the Arab Oil Embargo and Watergate (1973-74) and the recession and tech collapse around 9/11 (2000 to 2002).
Other than those 4 times, the broad market has never had two or more straight declines. Of the 92 years, we’ve had 67 positive years or 73 percent of the time.
Following the most recent financial crisis, in 2009, after the Great Recession, the year started terribly, down more than 20 percent in the first few months but ended up by 26.5 percent. In 1987 following the crash that included the single worst day in U.S. stock market history, the market closed the year up by 5.2 percent.
Most people think of the stock market as a casino. But if you are a long-term investor, over the last century, you are the house and 3 out of 4 years, you are a winner, often by a large amount. I like those odds. Over the course of my 36 year investment career, the Dow Jones Industrial Average has gone from 800 to more than 23,000 as of year-end 2018. If you ask me, that’s a great casino and no cause for alarm just because of the recent unpleasantness.
