Finally, a Stock Market Crash!

Sharing some key phrases/images from this blog post:

The bottom line is that the overall US stock market is down about 20% over the past three months. Which means that if you add up your net worth as I do occasionally, you may find that almost a fifth of it has suddenly gone up in smoke.

Fortunately, this is just an illusion. While the human side of every war is awful and you should help out if you can, the financial side of this panic is very normal and we were overdue for something like this to happen.

What if we decided to be more sensible, start the damned Y axis at zero as every graph should do, and zoom out to a reasonable time horizon,such as the Age of Mustachianism which happened to begin in 2011. And ignore the wiggly blue line and follow the more meaningful red line.

Well, how interesting. Not only has this crash returned us to a roughly straight line of longer term stock market growth, but that line itself is very generous, representing a 12.8% annual compound gain if you factor in a quarterly reinvestment of dividends (which typically add about 2% to your annual returns but aren’t shown in these charts). Over longer periods like 50 years, stock returns have been closer to 10% after dividends, which means we’ve still had more than our share of good times.

The world is scary and the stock market has plunged, but the fundamental picture hasn’t changed at all: billions of humans are working hard and applying their ingenuity every day to get ahead. It’s a messy process, but on average we continue to succeed at this task over time. People who understand this unchanging mechanism will look at this year’s sale on productive asset and say, “Cool – sign me up for another helping of future wealth, and thanks for the deal!”

In case you’re worried about the market conditions right now, perhaps this will help.


Interesting. But a 12.8% annual compounded return is not a straight line, it’s an exponential curve like the market was doing until this crash.