Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Loading...
Most Recent Stories

What can we Learn from 25%+ Years?

With just a few weeks left in the year it looks like we’re likely to end up with a relatively rare 25%+ year on the S&P 500.  MKM Partners listed some interesting data about the unusual 25%+ year in the market and what we can expect following such a big move.  They said:

“What is unusual is that this year we’re following 2012 which was up 13%,” Krinsky says, noting that of the sixteen times the market has delivered that degree of upside since 1928, “only four them followed a year that was up 13% or more.”

Krinsky also points out that, more often than not, these type of outsized years tend to spill over into the following year, writing that “Overall, following an up 25% year, the following year is higher 66% of the time, for an average move of +5.47%.”

 

25

 

There’s a few interesting things here.   That average change in the S&P is actually about HALF of the average annual return of 11.5% since 1928.  Further, of the 4 years where there was a 12% and subsequent 25%+ year (as we currently have), all were relatively extreme.  In the 1945 market the 25%+ year was followed by a -11.3% decline while the 1989 market was followed by a -6.56% year.  The other two years with back to back 12%+ and 25%+ years were both followed by big booms during the Nasdaq bubble.  So one might conclude that the market is likely to move substantially in one direction or the other in the coming year.

But does this data really tell us anything all that useful.  Call me skeptical.  I don’t find such small datasets particularly useful.  John Templeton once said that the four most dangerous words in investing were “it’s different this time”.  But I actually think it’s always different this time.  We have to study each market environment as if it’s its own unique environment.  And that means the past can give us some idea of what’s to come, but I would be hesitant about weighting one’s portfolio based on such data.

Comments are closed.