ArticlesThe stock-market has been having a rough old time for the last six months, and various companies that live off of other people’s savings have been in full swing, exhorting people not to panic and withdraw their money.
One line that I have heard twice recently (and many times over the years, every time the market takes a dive) goes something like this: “Throughout history, there has never been a downturn which the market hasn’t recovered from.”
It sounds reassuring, except it really isn’t saying that much.
Firstly, all it is saying is that the current market indices are higher than they have ever been before. Given that (at the time of writing) they are not, the statement isn’t entirely true. The market hasn’t recovered from the drop we had over the past year. (I could have said “hasn’t yet recovered”, but that would be begging the question.)
Secondly, it doesn’t consider how long it took to recover. The 1987 stockmarket crash took over 5 years to recover from. The 1929 stockmarket crash took 22 years to recover from. For many of you, that accounts for a quarter of the life of your grandparents.
Too bad if that was when you needed to spend your savings…
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Comment by Julie Lawrence on July 25, 2008
= “that live OFF …”
Sorry. Had to be corrected.
[Ed: Ooops. Sorry. Corrected.]
Comment by Julian on August 29, 2011
I just had someone claim that the stockmarket recovered from the 1929 crash in 6 years. Nah, I thought. It was 22 years, and I came here for a reference to prove it…
Where’s the reference? Tut tut!
Comment by Julian on August 29, 2011
Wikipedia says 25 years:
Yes, a citation is provided.
Comment by Julian on August 29, 2011
Turns out he only meant the *Australian* stockmarket, which recovered much faster. As you were…
Comment by Alastair on August 29, 2011
Well, technically you’d have to also account for a risk-free interest rate as well wouldn’t you?
I mean, if you had $X worth of Dow stocks in 1929 and then again in 1954, you have still lost money. In other words, putting the $X into US Treasury bonds (or whatever) would have netted you $Y by 1954 where Y > X.
So to really claim a recovery, you’d have to say it took longer than 25 years.
Comment by Julian on August 29, 2011
Yes, you are factoring in opportunity cost.
Even if you don’t go quite that far, factoring in inflation would be more than reasonable.