For more than 13 months, investors have enjoyed a record-breaking bounce-back rally on Wall Street.
The first thing to realize about stock market crashes and corrections is that they’re really quite common.
Not only is 37.53 more than double the average Shiller P/E for the S&P 500 since 1870, but anytime the Shiller P/E has jumped above and sustained 30 throughout history, bad things have happened.
In each of the previous eight bear markets prior to the coronavirus crash, there was at least one double-digit percentage pullback within three years after the bear-market bottom was reached.
This is a fancy way of saying that all major dips in the S&P 500, Dow Jones, and Nasdaq Composite have proved to be buying opportunities.
For example, buying tech stocks can lead to wilder vacillations than if you were to put your money to work in defensive companies, such as electric utility stocks.
But if you had owned an S&P 500 tracking index since 1980, your average annual return, inclusive of dividends, is about 11%.
There’s a very good chance that a short-term, emotion-driven crash or correction in the market isn’t going to have any bearing on your investment thesis or the underlying operating performance of the companies you’re invested in.
The solace you should take while investing during an emotion-driven decline is that, since 1950, there have been 38 double-digit declines in the S&P 500.
What’s more, a report from Crestmont Research found that the trailing 20-year total returns of the S&P 500 between 1919 and 2020 have never even come close to being negative.
Mature businesses that pay a dividend may not offer the same growth rate or return potential as high-growth companies or small-cap stocks.
Morgan Asset Management showed that companies initiating and growing their payouts averaged an annualized gain of 9.5% between 1972 and 2012.
While I know growth stocks have run circles around value stocks since the end of the Great Recession, it’s value stocks that are the better performer over the very long term .