How Long Before Markets Decline Again?
Looking at the history of global stocks, it has given a positive return 72% of the time. Consecutive years of positive returns, without a significant decline (-10% or less declines), last for an average of nine years. The shortest run on record lasted for two years (1971-1972), and the longest — for 15 years (1975-1989). In recent history, global stocks seemed to be on track to beat its longest record of advance without a significant decline from 2009-2021 — 13 years before markets declined by -20.8% in 2022.
2023 has become a new page in the history books and market participants are eager to know how long this next advance in markets will last. If history is any guide, markets have a tendency to give positive returns, rather than negative, and once it starts advancing, it tends to continue. This makes sense if we compare it to economic data, which shows us that economic expansions in the U.S. go on for more than six times as long as economic contractions (According to data from the National Bureau of Economic Research, NBER, 1945-2020).
You will also notice in the chart above that on your journey of compounding returns, you will run into small corrections, defined as -10% or less, and infrequently (11% of the time) run into declines that are more significant, defined as -20% or more.
In line with The Math of Gains and Losses, we are focused on limiting large losses for our clients. Our Risk Matrix which is a data-dependent quantitative model, informs us when risks are high and signals potential impending catastrophic losses. This allows us to take pre-emptive action, such as cutting risk in our portfolios. The historical record also informs us that active intervention should be infrequent and we should not be out of the market unless absolutely necessary as doing so can cause investors to miss out on important returns.
If you would like to know how we can help you manage your financial affairs, read on.
Most of us would trust an accomplished physician to manage our health. After all, physicians have specialised training, real-world experience and access to tools outside the reach of the general public. Most importantly, they took an oath to prioritize the patient’s health over their own interests.
In the way same, GYC adapts insights from financial science to develop a financial plan that is built upon a rigorously tested investment philosophy. We work hand in hand with our clients to accomplish each of their unique goals.
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