PS: The Coronavirus carnage, scary as it may be, brings with it opportunities for the vigilant investor. If you are such an investor - this could be your opportunity.
How Soon Before the Market
How Soon Before the Market
Reaches New Heights Again?
Recently I wrote to you about why retail investors don't buy more during crashes even though corrections offer a chance to pick quality Mutual Funds at the lower prices.
The answer, I wrote, lay in widespread fear and the inability to see beyond the price charts.
In the depths of a market crash, it is impossible to predict when the next up cycle will start or how long a down cycle will continue.
Be that as it may, every once in a while, there comes along a set of numbers that gets one totally thrilled.
The kind that gets you up from your seat, pacing the room, amazed at what goes on in the circus of the stock market.
I stumbled upon such a statistic recently. In researching stock prices going back to 1985 and all the market crashes since then, guess what I discovered?
Over the last three decades or so, on average it has taken only 1.8 years to go from the dreadful depths of a stock market crash to the lofty pinnacle of a market high!
Do note that this is not the time taken only to get out of a crash. This is actually the average time it has taken to get from the depths of a market crash to the next market high.
And wait till you hear this next bit...
The BSE Sensex's average gain during such periods was 165%!
That's more than two and a half times your money in less than two years!
Talk about gain after the pain!
Here's the entire story:
| Date when market hit a high | Time taken to swing from depths of previous crash to the high (years) | Gain in the Sensex |
|---|---|---|
| 27-Feb-86 | 1.2 | 143% |
| 09-Oct-90 | 2.5 | 300% |
| 22-Apr-92 | 1.2 | 367% |
| 16-Sep-94 | 1.4 | 127% |
| 05-Aug-97 | 1.5 | 61% |
| 11-Feb-00 | 1.3 | 115% |
| 14-Jan-04 | 2.3 | 138% |
| 10-May-06 | 2.0 | 180% |
| 08-Jan-08 | 1.6 | 134% |
| 05-Nov-10 | 1.7 | 157% |
| 29-Jan-15 | 3.1 | 96% |
| Average | 1.8 | 165% |
Now that's an exciting statistic!
Here's the thing. Falling stock prices are usually an equity investor's biggest source of pain.
And a market crash?
Well, that can cause outright depression. It can paralyze existing investors and scare away new ones.
But down in the depths of a stock market crash like the one we're in currently, when fear rules and everywhere you look is red, remember these numbers.
And the power of Mutual Funds to make money through this volatility!
Courtesy-Richa Agarwal (Research Analyst)
Editor, Hidden Treasure
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