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Call it a market boom or bubble but not a bust just yet

By Dian Vujovich

How about that Janet Yellen? The likely-to-be new chairwoman of the Federal Reserve said she doesn’t see any bubbles in equities or the real estate markets right not, only booms. I’m with her on the real estate part but not with respect to equities. But hey, time will tell. In the meantime, it’s been a  hip-hip-hoorah time for many equity shareholders.


According to BTN Research, the bull market is in its 57th month. According to The Motley Fool’s senior analyst, Morgan Housel, market corrections happen about once every decade.


Housel looked at performance data about the S&P500 dating back to 1928.  Before writing about the details of his research in a piece published Nov. 15th, Awaiting the Next Market Crash”,let me pick a little nit: The S&P500 wasn’t around in 1928.


How that index came into being goes like this: In 1926 Standard Statistics created the first stock composite price index of 90 stocks that were computed daily. In 1941, Standard Statistics mergers with Poor’s Publishing. And, the S&P500 index didn’t debut until 1957. This, according to standardandpoor.com .


It bugs me when details are overlooked or assumed. Enough said, back to Housel’s words.


What Housel found while looking at  21,674 trading days were these tidbits:


-“Stocks have declined at least 10 percent from a recent high 89 times— about once every 11 months.”


-“Stocks have declined at least 20% 21 times. So a few times per decade.”


-“Stocks have declined at least 30% nine times. Let’s call it once a decade. ”


Here’s why Housel said that this matters: “Because during this 85-year period, the S&P 500 returned more than 9% per year, turning every $1 invested into more than $2,700 within a lifetime. Even after inflation, each dollar invested turned into more than $200. 

Let that sink in. During a period when the market lost 10% of its value 89 times and a third of its value nine times, investors multiplied their real wealth more than 200 times over. 

I never get sick of reading those numbers. ”


If there’s any future prediction one can make based on past S&P performance history, perhaps Yellen is right on and this bull market has a few years to run.


My gut isn’t really buying that. But then again, my gut isn’t in charge.

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