Selling stocks now? History objects!
The world has shut down. In times like these, it is very easy to let darkness in, greet it as an old friend, and let it influence you to sell your stocks. But that would probably be a bad idea right now.
The Sound of Silence
The sound of silence has been prevalent in many offices as of late. Workplaces once buzzing with vibrant energy have become reduced to empty spaces with a lingering calm. On the advice of authorities and employers, many Norwegians have opted to work from home. For those with children, who are also staying home due to closed schools and kindergartens, everyday life has become more noisy and chaotic than usual.
Hello darkness, my old friend I’ve come to talk with you again
The same can be said about the stock market. This has been a very demanding month for investors in all types of securities. In a time when the world has come to a halt, there are few if any markets that benefit. It is difficult to find bright spots when known and loved ones are being laid off, markets are plunging, and the shelves for toilet paper in supermarkets are empty.
From a historic point of view, however, now would be a bad time to sell your stocks.
How far have we fallen and how far can it fall from here?
At the time of writing, the American stock exchange S&P500 has fallen 34% (in USD) from top to bottom. It’s only been 4 days since we entered into a bear market. Since World War II there have been 12 (now 13) bear markets and only 5 (now 6) where the index has declined more than 30%.
In these five erstwhile periods, from the time they drop pushed below 30% from the top, the index fell – on average – another 19%. The range of outcomes, however, is quite large. The lowest decline was another 1%, while the biggest was another 36% (the global financial crisis). Historically, there is thusly little that suggests we have reached the bottom just yet. On average, the fall from top to bottom (in this admittedly small sample) lasts for 18 months.
