Chances of Loss in the Stock Market
I like to play the odds when it comes to the stock market.
I am a long term investor because it increases your chances of success. There are no guarantees but the short term is more volatile than the long term.
But opportunities in the stock market do not stand still. These things are constantly changing and the results are highly dependent on the time frame you use.
For example, over the past 100 years or so the S&P 500 has experienced a drawdown of 10% or worse two-thirds of all years. You would see a 5% improvement in 94% of all years and a 20% decline in 1 out of every 4 years.
These are the long-term averages:
However these averages are distorted by the first half of the data. Just look at how bad things were in the 1928-1950 period:
Every one year have a 10% adjustment. Half of all years had an intra-year bear market!
This makes sense since this time frame included the Great Depression and World War II.
Now look at 75 years of data:
That’s like it.
The second dataset is very useful for investors today. There are many structural reasons why I think another 1929 will never happen.
However, the post-World War II era still has many scary moments. It sounds like a lifetime ago, but there were two 50% crashes in the first decade of this century.
Besides the bull market, we actually had three bear markets in the 2020s (Covid, 2022 and Independence Day).
These long-term estimates are useful in context but it’s important to remember that risk can be lumpy as return.
Historical data provides a useful reminder that despite the stock market’s spectacular long-term gains, there have been many bumps along the way.
Losses have always been and will always be a big part of investing in the stock market.
Michael and I talked about potential gains and losses in the stock market in 2026 and much more in this week’s Animal Spirits video:
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Further reading:
Investing for the Long Term
Now here’s what I’ve been reading lately:
Books:
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