The Stock Market Doesn't Always HAVE to Go Up - 3 Historic Examples

Sometimes Even Decades of Convincing Data Isn’t Enough to Forever Predict the Future

Just Because the Stock Market Has Trended Up for the Last Century, that Doesn't Mean It Always Has To...

Mark Twain popularized the phrase, “There are three kinds of lies: lies, damn lies, and statistics.”

Assertions supported by compelling statistics derived from historically exact numbers often appear infallible.

Sometimes, a statistical hypothesis - even one backed by decades or centuries of cogent data - proves dead wrong. Often, in such scenarios, people previously comforted by its sound logic are astonished and devastated.


Super Bowl LI

Super Bowl 51 provided us with a prime example: with 8 minutes and 31 seconds remaining in the third quarter, the New England Patriots trailed the Atlanta Falcons 28 - 3. Fifty years of historical data suggested there was no way the Patriots could come back and win. No team had ever come back from a deficit greater than 10 points (let alone 25!) to win a Super Bowl.

The Patriots defied the statisticians. They changed history and emerged victorious, 34 - 28.

This same logic applies to financial markets. There are plenty of times in history when relying on strong historical data and trends would have left you dead wrong.

Japan, 1989

In 1989, an expert could have studied 75 years of Nikkei 225 data and correctly pointed out, “If history is any indicator of future trends, the market will not fall by 50% and stay below that halfway mark for more than two decades.” I am sure no pundit ever wasted her breath to say this, because nobody would consider losing two or three decades of market growth a remote possibility then. I imagine not even the doomsdayers would have prophesied quite so gloomy an outlook.

My point is, they could have made those claims and cited their statistics, and, based on 75 years of data, their assertions would be seen as entirely correct.

Additionally, they could have said, “Based on more than 40 years of post-war data, the Nikkei 225 will increase over any ten year period!” Again, that statement would be supported by historical statistics.

Unfortunately, despite decades of hard historical data, our hypothetical 1989 Japanese expert economist would be dead wrong.

United States, 1931

An early-1931 US economist could have accurately posited, “History suggests the market will never fall more than 50% from its high.”

They had just gone through the terrible crash of 1929. Markets had fallen roughly 48% from their all-time high. But the recovery was underway - the market was on its way back up. With 40+ years of data and one of (what was sure to be) the worst market crashes under our belts, experts could say with confidence, “History has shown us that, even in the worst of circumstances, a drop greater than 50% is not possible.”

Again, dead wrong. From April 1931 through July 1932, the market fell over 86% - totaling 89% from its 1929 all-time high - a record that took 25 more years to break!

Imagine you had invested a large lump sum in 1931 in preparation for retirement. You trusted the financial pundits’ axiomatic rhetoric - after all, they had history and statistics on their side!

Your retirement dreams shattered as the pundits shrugged and whined, “There was no way for us to know - this has never happened before!”


Using what we know from history, John (Jack) Bogle (the founder of The Vanguard Group) told CNBC on April 1, 2013:

Prepare for at least two declines of 25-30%, maybe even 50%, in the coming decade. Trying to guess when it is going to go way up or way down is simply not a productive way to put your money to work.

Bogle is the quintessential supporter of a simple buy-and-hold, low-cost, stock-and-bond strategy. He believes, like many other intelligent experts, that history proves the market trends upward. Thus an investor is best served to sit back, relax, and enjoy (read: control your emotions during) the ride.

Bogle’s point is that substantial market declines happen, but data suggest an investor should stay the course and not question. Indeed, his statistics are correct. Over 100 years of reliable stock market data prove an upward trend in the market.

This all sounds eerily familiar...

Does a relatively small historical data sample guarantee future performance?

Of course not!

Not even a 100+ year trendline.

After that 50% fall Bogle expects, how can you, Mr. or Ms. Investor, be sure the market won’t set a new record for the number of years before surpassing its previous all-time high (currently 25 in the US)? How can you be certain the United States won’t have a financial crisis with an aftermath like Japan post-1989 through today (currently around half its all-time high), or worse?

Unfortunately, you can’t know.

The “experts” can’t either, even when armed with all the statistical models money can produce.

Trends change. New realities happen, and history is made.

Trends change. New realities happen, and history is made.

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Is it unreasonable to at least acknowledge this potentiality?

I think it’s dangerous not to.


I am committed to helping people discover better ways to protect and grow their hard-earned assets. We’ll dive into specifics soon! I think the first step in preparing, however, is to simply acknowledge the potentiality discussed herein.

Challenging the comfort of the traditional investment paradigm can be depressing and stressful, but it can also put you on a path of lifelong prosperity - come what may.

Challenging investment dogma can be stressful but could put you on a path of lifelong prosperity

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Stephen Spicer

Stephen Spicer, CFP®, AEP®, CLU® is the founder and managing director of Spicer Capital, LLC. He is married to his high school sweetheart, and they have three amazing boys.