As we’re writing this post, it’s March 9th. Do you remember what happened 10 years ago on this date? We remember it well.
The stock market hit a new low in the midst of the “Great Recession.” The Dow Jones Industrial Average (i.e. the Dow) – which had previously peaked in the fall of 2007 at just over 14,000 – dropped to a nausea-inducing level of just under 6,500, a “peak to trough” decline of well over 50%. There were market prognosticators suggesting that the Dow could drop further, perhaps to 3,000 or lower. It seemed hard to fathom. But it also seemed possible.
Well, the Dow didn’t drop any lower. On March 9, 2009 the Dow the bottomed out. The market then turned up and went on a tear. April 2009 produced one of the strongest one-month returns in the history of the stock market. By the end of 2009, the Dow was up 60%.
It has been an incredible 10-year run … the longest bull market in history.
This past Friday the Dow closed at 25,450. The market is still off slightly from the last high of roughly 26,500, reached last September. Also, this is not the greatest bull market as measured by returns. That honor goes to the bull market of October 1990 to March 2000 which saw returns of over 400%. The current bull market ranks third in terms of market return with an increase of over 300%.
We remind you that a bull market is generally defined as a market period during which prices have risen by at least 20% from a prior low and in which prices have not declined by 20% below the newly-established high. If you would like to see this visually and interactively, check out this chart at Yahoo Finance.
What can we learn from this current bull market?
First, investors need to have a long-term perspective. Market cycles can be, and often are, long. Bear markets are generally shorter than bull market cycles. But they tend to be more severe. When the market drops, it often does so dramatically. When the market rises, it tends to do so more gradually.
Second, investors are rewarded for fortitude when the skies are darkest. The most rapid upward moves of the market almost always follow the market having reached very disturbing low points (e.g. March of 2009). Those who bail out of the market in these circumstances fail to fully participate in the rapid recovery that inevitably follows.
Finally, the market goes up most of the time … not sideways and certainly not down. While it may not seem that way, the market is moving up about 70% of the time (measured annually). Because the market goes up most of the time and because we cannot know when the market will decline, investors should be fully invested all of the time. It only makes sense to take money out of the market, if that money will be needed for some purpose in the not-so-distant future.
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