Will the Market Fall Again?
Looking at this 100+ year chart of the Dow we can see a few times the market surged upwards never to return to its previous low. However, this tended to be only after 15 or more years of sideways movement. On average, the market experiences a 50% drop once every ten years or so. But rather than occurring exactly ten years apart, these drops are heavily concentrated in the long spans of sideways movement. During a particular twenty year span, five such drops occurred.
We have more recently had twelve years of sideways movement (sprinkled with downward and upward lurches). I would not be surprised if we had much more than fifteen years of sideways movement (sprinkled with more downward and upward lurches) from the peak of the internet bubble. This chart indicates thirty to forty years of sideways movement is not out of the question. The exorbitant valuations near the turn of the century and this economic recovery (which isn’t) are creating ideal conditions for several more years of mostly sideways movement. Such a market will be uninspiring to the masses but, as always, the roller coaster ride ahead could be immensely profitable for those who are willing to risk investing in great businesses along the way.
I wouldn’t be surprised if ten years from now we see news articles saying equities are dead while die-hard students of stock investing look back at their 10% plus annual returns a year during the “dead” stock market.
Even after the devastating crash beginning in 1929 there was opportunity in the years ahead.