It's easy to get caught up in the emotions of stock market fluctuations. An investor can lose sight of long-term trends. If you want to consider a really long-term perspective, here's an interesting fact: Since 1871, the stock market has never been in a long-term downward trend. A line drawn through the chart showing the average trend goes straight up at almost a 45-degree angle. Shorter periods reveal some interesting long-term trends.
1950 to the Present
When you examine stock market trends since 1950, you can determine the likelihood of a down year in the stock market. According to Dean Morel of Fusion Investing, if you invested your money on any given day since 1950, the odds of losing money for three years in a row is one out of 93. Out of 14,726 days he examined, only 159 of them would have been a bad day to invest, if you accept a three-year losing streak as your standard. There have never been four losing years in a row since 1950.
You can take any 20-year slice of the stock market's history, and you won't find an average yearly loss, according to "USA Today." Despite ups and downs, the trend has been up for any 20-year period you choose. This means that the longer you hold stocks, the more likely you are to experience an upward trend, Brian Belski, Oppenheimer's chief investment strategist, told "USA Today." That doesn't mean you'll never have a losing year, but it does mean that subsequent years might make up for your losses, according to the newspaper.
Significance of the Trend Line
Stocks underperform the trend from time to time, and they sometimes overshoot it. In 2000, according to Doug Short of Advisor Perspectives, the market hit a high that was 154 percent above the trend line. From there to 2009, the market dropped until it came back to the trend line. Short suggests that whether the market runs below or above trend, it tends to revert back to the trend line eventually.
The stock market has shown remarkable consistency, according to Barry Ritholtz, writing for The Big Picture. It has always gone up from a long-term perspective, and it has always reverted to the trend line. The market can stay far above or below the trend for long periods. It gets back to the trend not by moving sideways, but through steep rises and dramatic drops.
- The Big Picture: Long Term Stock Market Growth (1871-2010)
- Seeking Alpha: Digging Deeper Into Historical Market Data 1871-2009
- USA Today: Holding Stocks for 20 Years Can Turn Bad Returns to Good
- Fusion Investing: The Odds Are Stacked for Positive Gains
- Advisor Perspectives: Secular Bull and Bear Markets
Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.