By Aman Preet Singh
To state the obvious, it’s impossible to precisely pick when a stock market crash will occur, how long it’ll last, how steep the decline will be, and in many instances, what’ll be the primary cause of the crash. Last year, few had “once-in-a-century pandemic” penciled in on their cheat sheets.
Nevertheless, history is pretty clear that when certain parameters are hit, a crash or sizable correction has occurred. Although the market doesn’t follow averages to a T, it does tend to mirror history quite closely.
Stocks don’t move higher in a straight line.
History has given us an inside look at what happens following bear-market declines, too.
Since 1960, there have been nine bear markets. In each of the previous eight (i.e., not including the coronavirus crash), there was at least one double-digit percentage crash or correction within three years of reaching the bear-market bottom. In aggregate, these eight bear markets yielded 13 double-digit moves lower within three years of a bottom. That’s one or two sizable crashes or corrections following every bear market.
Big declines are commonplace in the stock market, but there’s no need for them to be feared.
One of the more interesting statistics that often gets overlooked about stock market crashes and corrections is how quickly they are over.
Out of 38 double-digit declines in the S&P 500 since the beginning of 1950, 24 of these dips have resolved in 104 or fewer calendar days. That’s about 3.5 months. Another seven found their trough somewhere between 157 and 288 calendar days, or between five and 10 months. That leaves just seven double-digit declines in 71 years that took more than a year to find a bottom.
Even more important, history tells us that crashes and correction are a surefire buying opportunity. Though “surefire” isn’t a word to toss around lightly when it comes to investing, each and every one of these 38 double-digit declines was eventually put in the rearview mirror by a bull market rally
So,If you have long term mindset, history can be your greatest ally.