Keeping Focused on the Bigger Picture

Aug.22.06 | About: SPDR S&P (SPY)

Roger Nusbaum submits: In 1987, the S&P 500 was up 2.0% for the year. That was the year that the stock market crashed.

On November 30, 1992, the S&P 500 was at 431.35. Ten years later it was 936.31, a 117% gain. I picked November because that is when some say the SPX bottomed after the tech-crash.

From 1968-1981, a particularly dark period for domestic equities, there were six years of double-digit gains. That is, the same number of double-digit years in the 1990's, the greatest decade ever for equities. Point conceded that I am comparing a 14 year period to a ten year period but still.

On August 21, 1996 the S&P 500 closed at 665.07. As I write this it is at 1297.48, a 95% gain.

In 1989 the S&P 500 was up 27.3%. Do you even remember the mini crash on October 12 of that year? The market fell 6.1% as the UAL LBO unraveled.

If you bought the S&P 500 on October 15 1987 (the market actually fell about 5% the day before the crash) at 298.08, you were back to even on a closing basis on February 7, 1989. It took less than 16 months to break-even from the worst crash since the depression when buying at about the worst time possible.

On October 27, 1997 the S&P 500 fell 6.8% because of the Asian Contagion. It was back to pre-contagion levels seven trading-days later.

The market dealt with more serious matters in 1998 with the LTCM blowup and the Russian debt-crisis. In that go-around the S&P 500 fell from its July 17 peak of 1186.75 to a low of 959.44 on October 8. That was a 19% decline in less than three months. The market closed at 1186.76 on November 25. It took back the 227 points in about six weeks.

How long is your portfolio's time-horizon? These numbers show that horrible events in the market are quickly recovered most of the time. The 1930's and the 1970's stand out as two exceptions.

For all anyone knows this decade may be like both periods. If so there could be some huge up-years mixed in.

Too many people focus on the wrong thing; the short-term. If you need the money in two years, equities are the wrong asset-class. If you need the money in 20 years, equities are the right asset-class. The market is higher ten years out the vast majority of the time.

If you own stocks keep in mind that the things noted here are the backdrop to what you need to deal with, and that the short-term has less importance.