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If you've read any financial news over the last 3-5 months you've seen the bubble debate. Fact is there are some pretty compelling indicators that we're sitting on top of a pretty substantial bubble (S&P 500’s market capitalization is 177% of U.S. GDP, during the Dotcom bubble it peaked at 121%). This post isn't an attempt to convince you IF there is a bubble or not. Even the most educated of guesses will never be able to tell you when that bubble pops. The question I'm looking to explore here is what happens if we are in a bubble and it pops? How long of a recovery can you expect based on historical bubbles? If you're new to the market and wondering if you should add at all time highs or a seasoned veteran wondering how to manage your gains I'm sure some of the information here will surprise you. Let me state once again, this is NOT financial advice and definitely not a prediction. With that let's set the parameters. I'm going to look at 3 historical bubbles to see just how long after the bottom was reached the market took to double. The 3 periods I'm going to examine are 1929, 1987, and 2000. We'll start with the 1929 crash that set off the Great Depression. An investor who invested a lump sum in the average stock at the market’s 1929 high would have been back to a break-even by late 1936 less than four and a half years after the mid-1932 market low. You might be surprised by that fact as the commonly stated figure is 25 years before the Dow regained it's high achieved before the crash of 1929. The fact is these figures fail to account for three factors: Deflation, Dividends, and the Dow. I could do an entire post on this alone but for those interested I've enclosed a link that details how these 3 things distorted the true recovery. The stock market bottomed on June 1, 1932 following the bone-crushing 80%+ crash that began in 1929. Stocks were basically flat for the remainder of the month but then took off like a rocketship, rising a cool 92% in July and August of 1932. By the first week of September 1932, the stock market was up more than 100%, which happened in a little more than 3 months. I guess you could say the stock market was a tad oversold from the worst crash in history. A second starting point would be 1987. The October 1987 Black Monday crash saw the market lose more than 30% of its value in less than a week. The S&P didn’t technically bottom until December of that year. Returns for the market were strong in both 1988 and 1989, up 17% and 31%, respectively but there were two separate double-digit corrections in 1990 of -10.2% and -19.9% (which included a recession). The S&P 500 didn’t hit 100% returns from the 1987 lows until December 1991, 49 months later. The final crash is the Dotcom crash of 1999-2000. Following the dot-com bubble, the S&P 500 fell 50% from the spring of 2000 through the fall of 2002, a period that also included the Enron scandal and 9/11. The S&P 500 was twice as high as the October 2002 lows by January 2007. So that was roughly 50 months or more than 4 years for a 100% gain off the bottom. Of course that recovery happened just in time for the Financial crisis of 2008. After the Great Financial Crisis caused the market to fall 56%, the S&P bottomed on March 9, 2009. The market snapped back in a hurry, surging nearly 70% from those lows through the end of the year. A 16% correction in 2010, set things back a little, but by the end of January 2011, the market was up 100% from the lows. That would be around 23 months or just shy of 2 years for a double from the lows of the Great Financial Crisis. The lesson here is clear, even after the most extreme events in market history it took a maximum of just under 5 years for the market to recover 100% from those lows. The best single month gains in history have occurred right after the biggest losses. So when (not if) we do have another extreme market event it is extremely important that you are prepared and don't panic. Yes the bottom looks very bad, not going to lie to you, but if you give up and panic you will not only lock in losses but you will miss the recovery. As someone who's lived through at least 4 declines greater than 15% and 2 greater than 30% let me tell you, staying put won't be easy. It's always a temptation to think "what if it never recovers?" History shows that not only does it recover but it takes far less time to do so than you might have thought. Further reading 25 Years to Bounce Back? Try 4½ ///// ///// ///// #tcardizzle #crash #hodl #learingtheropes //// Join us on discord as we continue to learn and earn together
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