Saturday, November 29, 2008

How bad was it?

We may or may not have hit the bottom of the bear market. If we have, it is worth asking, "How bad was it?"

There are a variety of ways of computing the decline in the stock market. There are different indexes and there are different ways of measuring the same index. Using data I could readily find on the Internet, the monster bear market was the 1929 to 1933 bear market, which saw stocks decline about 89%, Stock prices did not get back to 1929 values until the mid 1950s.

In the past hundred years there have been three other serious bear markets. In 1919-21 stocks declined 46.58%. In 1937-38 they declinded 49.10%. And in 1973-75 they declined 46.98%. (There were also two bear markets between 1900 and 1908 that were in the 45-50% range.)

Using a different series (from, I compute the 2007-08 decline as 46.66%. This is from the Dow Jones Index, with a peak of 14164.53 (Oct 9, 2007) and a low of 7552.29 (November 20, 2008).

So a few of the old men on Wall Street have seen a bear market equally bad as this one, but none of them have really seen anything worse. We live in interesting times.

(I consider the S&P index a much better measure of stock prices than the Dow Jones Industrials. The S&P 500 fell from 1565.15 on Oct 9, 2007 to 752.44 on Nov 20, 2008, a drop of 812.71 points, which is a 51.92% decline. [Ouch! No wonder my pension fund looks so bad.] That decline is more than 10% larger than the drop in the S&P from Jan 11, 1972 (120.24) to Dec 6, 1974 (65.01), a 45.59% drop. So based on that measure, and assuming there are no nonagenarians actively trading there, no one on Wall Street has ever seen a bear market as severe as the current one.)

See an update here.

No comments: