Tag Archives: Great Recession

Perspective on Today’s Market Events

It looks like the U.S. stock market will finally get something that happens, on average, about once a year: a 10+% percent drop—the definition of a market correction.  The last time this happened was a whopper—the Great Recession drop that caused U.S. stocks to drop more than 50%–so most people today probably think corrections are catastrophic.  They aren’t.  More typically, they last anywhere from 20 trading days (the 1997 correction, down 10.8%) to 104 days (the 2002-2003 correction, down 14.7%).  Corrections are unnerving, but they’re a healthy part of the economy—for a couple of reasons.

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When the Index Beats the Algorithms

You might wonder why there wasn’t more media coverage of one of the most interesting bets ever made in the investment world.  We’re not talking about betting on a company; this bet was made between Berkshire Hathaway chairman Warren Buffet and a hedge fund called Protégé Partners, on whether a basket of hedge funds managed by algorithms and super investors would beat a simple S&P 500 index fund over a period of 10 years—which happened to include the Great Recession and one of the longest bull markets in history.  Each side put about $320,000 in 2007, with the proceeds—including all gains—going to charity.

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The Challenges of Capturing Bull Market Returns

You probably didn’t notice, but Monday, September 11 marked a milestone: the S&P 500 index’s bull market became the second-longest and the second-best performing in the modern economic era. Stock prices are up 270% from their low point after the Great Recession in March 2009—up 340% if you include dividends. That beats the 267% gain that investors experienced from June 1949 to August 1956. (The raging bull that lasted from October 1990 to March 2000 is still the winningest ever, and may never be topped.)

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Pictures That Tell a Story

They say a picture speaks a thousand words, and that means, to an economist, that sometimes it’s easier to communicate something complicated with a chart or a graph rather than a lot of explanatory text.

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