After a brutal day where the S&Ps dropped over 100 points at the open, came back to close to flat by lunch time only to finish down 77 points (-3.9%), the market is now down 10% during the month of August. Morgan Housel writes:
…the market is where we are today [down 10%+] or lower from its previous all-time high about half the time. And again, that’s during a period when the market made millionaires out of modest savers.
Some more numbers for you: Historically, about one-third of 5% declines go on to become 10% declines. And about half of 10% declines go on to become 20%+ declines.
So, think about that. Stocks are down about 10% from their all-time high. Historically, half the time this happens they fall another 10% or more.
Now for the Good News…Everything about successful investing comes back to one thing: The long run.
After a 10% drop, stocks are higher five years later 86% of the time. The average return during that period is 51%, which is great. If the market were to fall 20% from its all-time high, historically it’s been higher five years later 89% of the time. There are no sure things in investing, but that is darn close.
You can read the full article here: What Happens Next?