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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Data on corrections

Posted by Muthu on June 14, 2015

I was reading this piece which talks in detail about stock market corrections for last 7 decades.

I thought of sharing some points from the above piece:

If market drops less than 5%: Pause

5% to 10%: Dip

10%+: Correction

20%+: Bear Market

50%+: Crash

80%+: Depression

In India, we’ve never faced a depression and a crash only once in 2008.

During the last 70 years, US markets have undergone 27 corrections (10%+); average of one in every 20 months.

The average decline during the above period was 13.3%.

During the last 70 years, US markets have undergone 12 bear markets (20%+); average of one in every 6 years.

In general, markets are positive for major portion of the time.

As per this piece, since 1825, the US stock market has produced an annual gain 71% of the time, or 134 times, while losing ground just 55 times.

From 1979-80 to 2014-15; for the last 36 financial years; we had a 25 years of positive Sensex returns and 11 years of negative returns. So since 1979, the Indian stock market has produced an annual gain 69% of the time, or 25 times, while losing ground just 11 times.

As Morgan Housel further points out, since 1871, the market has spent more than 40% of all years either rising or falling more than 20%. Roaring booms and crushing busts are perfectly normal.

So a 10% to 20% fall is something which will happen periodically; like it is happening now.

A 20%+ fall will happen once in few years.

A 50%+ fall may happen two or three times in your entire investing life.

Over long run, quality companies and good funds keep going only in one direction- upwards.

The ride would never be smooth as corrections and bear markets keep appearing in between.

The rewards conferred by markets make the ride really worthwhile.

One Response to “Data on corrections”

  1. shreeux said

    Good to heard…!!!

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