Opinion – Grain in Grain: If you’re long on the US stock market, you need to see this review

The last 24 weeks have not been pleasant for those who are invested in the American stock market. Since January 3, when the S&P 500 index hit its high, it has dropped more than 20%. At this point, many investors are questioning whether the best decision is to “jump out” or “grit your teeth” and be patient. Below are some statistics to help you decide.

Devaluations of more than 20% are infrequent.

Using weekly data since 1950, the S&P500 has been down more than 20% from its peak for 16% of total weeks.

If you invested in the index every week it dropped more than 20% from its peak, on average you gained 24% in the subsequent two years.

Looks good?

No wonder you may have heard the popular saying: on the stock market, those who buy low and sell high make money.

In fact, on one of the occasions when the S&P500 dropped more than 20% in the past, the investor who took advantage of the drop pocketed a profit of more than 90% in the next 24 months.

However, it is necessary to remember that the average appreciation of 24% is a statistic formed by positive and negative samples.

There were moments when investment, even after the fall, was not favorable.

In the worst case, those who invested after a fall of more than 20%, suffered a devaluation of another 28% in the following two years. So, it doesn’t mean that you can’t devalue yourself more or that you can’t go a long time without winning.

But the investor who applied after the crash and kept his investment for two years had a negative result in only 8% of cases.

Therefore, in most cases, investment after a fall of this magnitude proved to be favorable for two-year investment horizons.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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