Market Performance Around Recessions

Market Performance Around Recessions

Some define recession as two successive quarters of negative real economic growth. Others use a more general framework of a decline in economic activity lasting for more than a few months with visible declines in GDP, employment, production and income.

The average length of recessions for the past 50 years has been 11 months. So as an investor, you can’t confirm if we’re in a recession until we’re almost halfway through it. For those deciding whether they should hold on or sell their holdings… take a look at the performance of the S&P from past recessions.

By looking at the numbers for the last nine recessions, we see some surprising and encouraging figures.

1. The largest market losses, as you would expect, are in the beginning of any recession.
2. The largest gains come from staying invested through the entire period.
3. The numbers show market timing would have given you an 8% gain at best and a -3% loss at worst.
   

For the last 50 years, the average return for the S&P 500 has been around 12.5%. Investors focused on the long term, who didn’t panic and who stayed fully invested in the market, found themselves with an average return of 42.4%. With those returns, it’s understandable why a great investor like Warren Buffett likes to see the market shake out from time to time. Here’s a look at one of Buffett’s most recent buys… and how to profit by following in his tracks.



More on this topic
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World Economy Falling Faster Than in 1929-1930 (naked capitalism, 4/6/09)
How Buffett Has Failed the True Test of Leadership (The Enlightened American, 1/27/09)
Buffett Bargain Hunting Despite 2008 Losses (Money Morning, 2/12/09)

Read more on Warren Buffett, U.S. Economic Cycles at Wikinvest

http://www.investmentu.com/IUEL/2008/May/warren-buffett-investing.html