Market crashes may sting, especially considering the stellar annual returns of the past few years. However this is all completely normal from a historical perspective.
Going back to 1928, there have been more than 90 occasions in which the S&P 500 has declined by 10%, or more, from its recent high. That’s basically once every year. Even bigger declines aren’t all that rare, either, when you stretch your time horizon out further than recent memory…
The Worst Is Yet To Come
Jeremy Grantham wrote in his latest piece on the superbubble event. “‘As always when superbubbles burst, the bear market rally after the initial stage of the decline but before the economy has clearly begun to deteriorate lures unwary investors back just in time for the market to turn down again and the economy to weaken.'” (See link below for the article)
While the reason for each decline may differ, market pullbacks are part of the game. Based on history, here’s how often you could expect drawdowns of increasing severity…
– Down 10% every 11–12 months;
– Down 20% roughly every four years; and
– Down 30% approximately every 10 years.
Obviously, even bigger declines can take a buzzsaw to our portfolios. We have seen how two 40%+ drawdowns have taken place since the turn of the millennium.
Last year, Michael Burry warned investors who bought into the hype that they were on the verge of the “mother of all crashes” by identifying the “biggest speculative bubble of all time in all things.”
He implied this week in a since-deleted tweet that Doomsday has finally arrived.
He opined that the bull market is finished, market crash is coming, and any rebounds will be fleeting.
Despite multiple rallies this year, the benchmark stock market index has fallen 18% from its December top. This is according to a screenshot of an S&P 500 chart tweeted by the fund manager of “The Big Short” fame.
He tweeted, reinforcing his belief that the market collapse is already in progress. “And yet I keep getting asked ‘wen crash?'”
In my opinion, this all goes to show the importance of a long-term mindset when investing in equity markets. Historically, recoveries from a market crash haven’t transpired as quickly as what we witnessed following the March 2020 sell-off. Time in the market tends to heal most wounds. Give yourself some wiggle room, and adjust accordingly, as your time-horizon shrinks or expands.
To investing for the long-haul.
Cheers and Happy Sunday