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    Four Charts That Explain The Stock Market 3718

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    chanderjagdish
    This document summarizes four charts that help explain the stock market. The first chart shows that stock prices generally rise over the long run. However, the document notes that the stock market can also experience sharp declines in the short run. The other charts shown provide additional context by illustrating historic market drawdowns and volatility within years, as well as the effect of time horizon on returns. Overall, the document emphasizes that while short-term declines are inevitable in the stock market, staying invested for the long run positions investors to participate in overall gains.

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    © All Rights Reserved
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    Four Charts That Explain The Stock Market 3718

    Uploaded by

    chanderjagdish
    10 views3 pages
    This document summarizes four charts that help explain the stock market. The first chart shows that stock prices generally rise over the long run. However, the document notes that the stock market can also experience sharp declines in the short run. The other charts shown provide additional context by illustrating historic market drawdowns and volatility within years, as well as the effect of time horizon on returns. Overall, the document emphasizes that while short-term declines are inevitable in the stock market, staying invested for the long run positions investors to participate in overall gains.

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    Four Charts That Explain the Stock Market 3718

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    This document summarizes four charts that help explain the stock market. The first chart shows that stock prices generally rise over the long run. However, the document notes that the stock market can also experience sharp declines in the short run. The other charts shown provide additional context by illustrating historic market drawdowns and volatility within years, as well as the effect of time horizon on returns. Overall, the document emphasizes that while short-term declines are inevitable in the stock market, staying invested for the long run positions investors to participate in overall gains.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    10 views3 pages

    Four Charts That Explain The Stock Market 3718

    Uploaded by

    chanderjagdish
    This document summarizes four charts that help explain the stock market. The first chart shows that stock prices generally rise over the long run. However, the document notes that the stock market can also experience sharp declines in the short run. The other charts shown provide additional context by illustrating historic market drawdowns and volatility within years, as well as the effect of time horizon on returns. Overall, the document emphasizes that while short-term declines are inevitable in the stock market, staying invested for the long run positions investors to participate in overall gains.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    FOUR CHARTS THAT EXPLAIN

    THE STOCK MARKET


    BY BEN CARLSON
    A WEALTH OF COMMON SENSE
    NOVEMBER 17, 2023

    I saw a chart this week from Bank of America that more or less sums up my entire investment
    philosophy:

    IN THE LONG, STOCK PRICES GO UP

    Past performance is not indicative of future results. Source: BofA Global Investment Strategy, Ibbotson, Global Financial Data.

    In the long run, stock prices go up.

    I view the stock market as a way to invest in innovation, profits, progress, and people waking up in the morning looking to
    better their current situation.

    While I love the fact that this chart illustrates my long-term philosophy, it’s a bit misleading. Yes, the stock market goes up over
    the long run but it can also get crushed in the short run. That can be difficult to see on a log chart with 200 years of data.

    The Great Depression, 1987 crash, and Great Financial Crisis look like minor blips on this chart. And while every crash
    eventually turns into a blip on a long-term chart, they don’t feel like it in the moment.

    The commentary is the opinion of the author and distributed with permission under limited license. All data and charts presented herein are from sources deemed to be reliable but are not
    guaranteed to be accurate. The financial information presented is for information and educational purposes and is not a substitute for professional advice; use of or reliance on any
    information herein is solely at your own risk. Edited from the original.
    FOUR CHARTS THAT EXPLAIN THE STOCK MARKET

    Looking at this chart got me thinking about what other visuals I would use to help explain the stock market in greater
    detail. Here are a few more:

    You can’t look at an up-and-to-the- S&P 500® INDEX DRAWDOWNS


    right chart of the stock market
    without taking into account the
    drawdowns along the way.

    Past performance is not indicative of future results. Source: NYU, Bloomberg.

    The Great Depression was not a blip. It was a tsunami. People thought the 1987 crash was going to lead to a depression.
    The financial system was teetering on the brink of extinction in 2008.

    Sometimes the stock market crashes. Sometimes it takes years to make your money back.

    You don’t get a long-term chart of stocks that moves up over time without getting your face ripped off on occasion. If you
    can’t survive the short-term drawdowns, you don’t get to participate in the long-term gains.

    This is true for market crashes, run-of-the-mill bear markets, terrible years, and even good years in the stock market.

    Another favorite chart of mine S&P 500® INDEX ANNUAL RETURNS AND DRAWDOWNS: 1928-2023
    that helps explain the stock market
    looks at the annual returns matched
    up with intra-year drawdowns.

    The average intra-year peak-to-trough


    drawdown since 1928 was -16.4%.
    Losses in the stock market should
    be expected.

    The other takeaway from this chart is


    that drawdowns happen even when the
    stock market finishes the year in
    positive territory.

    The average intra-year drawdown in


    years that have finished with a
    positive return for the S&P 500®
    Index going back to 1928 is -11.6%.
    Past performance is not indicative of future results. Source: NYU, Bloomberg.

    2
    FOUR CHARTS THAT EXPLAIN THE STOCK MARKET

    So you should expect to experience downside volatility even when stocks are in an uptrend.

    In fact, the average drawdown when the S&P 500 has been up by 20% or more during a given year is -11%. You’ve had
    to live through a double-digit drawdown in roughly half of all 20%+ up years in the stock market over the past 95 years
    of returns.

    Think about that—to get to 20% or more, you have to live through a correction in half of all years.

    The other surprising stat here is the sheer amount of 20%+ returns you see in the stock market in a given year.

    In 34 of the past 95 years, the U.S. stock market has finished the year with gains of 20% or more. That’s a greater
    percentage of years (36%) than the number of years that finished with a loss (27%).

    Of course, gains or losses in any one year are meaningless. All wise investors know the only time horizon that truly matters
    is the long term.

    Historical numbers have shown the S&P 500® INDEX BEST AND WORST RETURNS: 1926-2022
    longer your time horizon, the better
    your odds for success and the less
    variable your range of returns.

    Past performance is not indicative of future results. Source: Returns 2.0

    There are no guarantees when investing in the stock market.

    Bad things can and will happen.

    But if you have a time horizon that is measured in decades as opposed to days, months, or years, you’re going to be better
    off than most investors.

    I can’t promise these relationships will continue in the future.

    But, I have a hard time believing we’re going to have a future where people aren’t innovating, making progress, and waking
    up trying to better their station in life.

    That’s the lifeblood of corporate profits and that’s why I’m a believer in the stocks for the long run.

    To learn more, please contact us at 800-243-4361 or visit virtus.com.

    The S&P 500® Index is a free-float market capitalization-weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with
    dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
    Diversification does not assure a profit or protect against losses.
    All investments carry a certain degree of risk, including possible loss of principal.
    Not insured by FDIC/NCUSIF or any federal government agency. No bank guarantee. Not a deposit. May lose value.
    Distributed by VP Distributors, LLC, member FINRA and subsidiary of Virtus Investment Partners, Inc.
    3718 11-23 © 2023 Virtus Investment Partners 3

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