16/06/2015
Digesting share Market
I was reading this piece which talks in detail about stock market corrections for last 7 decades.
If market drops less than 5%: Pause
5% to 10%: Dip
10%+: Correction
20%+: Bear Market
50%+: Crash
80%+: Depression
In India, we’ve never faced a depression and a crash only once in 2008.
During the last 70 years, US markets have undergone 27 corrections (10%+); average of one in every 20 months.
The average decline during the above period was 13.3%.
During the last 70 years, US markets have undergone 12 bear markets (20%+); average of one in every 6 years.
In general, markets are positive for major portion of the time.
As per this piece, since 1825, the US stock market has produced an annual gain 71% of the time, or 134 times, while losing ground just 55 times.
From 1979-80 to 2014-15; for the last 36 financial years; we had a 25 years of positive Sensex returns and 11 years of negative returns. So since 1979, the Indian stock market has produced an annual gain 69% of the time, or 25 times, while losing ground just 11 times.
As Morgan Housel further points out, since 1871, the market has spent more than 40% of all years either rising or falling more than 20%. Roaring booms and crushing busts are perfectly normal.
So a 10% to 20% fall is something which will happen periodically; like it is happening now.
A 20%+ fall will happen once in few years.
A 50%+ fall may happen two or three times in your entire investing life.
Over long run, quality companies and good funds keep going only in one direction- upwards.
The ride would never be smooth as corrections and bear markets keep appearing in between.
The rewards conferred by markets make the ride really worthwhile.