The Sky Is Falling

Let’s start with a little market reality. Markets go up and down – that is the simple reality of markets. However, the version of reality you get depends on who you are listening to. If you listen to anyone on the sell side of markets, such as brokers, financial planners, or fund managers, they will try and tell you that markets never go down and if on the odd occasion they do, then they go straight but up. This is a distortion of reality, which I have spoken about before. An index might always go back up over time, but your shares probably won’t.

Welcome to the world of survivor bias.

However, if you listen to the media, you could be forgiven for imagining that the market crashes every second day. The media’s desire to generate an emotional response and, by extension, distress also contributes to this distortion of the truth.

Here are the facts: As I write, the Dow Jones Index has had 39,999 trading days since 17/04/1899. It has closed down 5% or more on only 87 occasions.

Sudden shocks are like unicorns—they are staggeringly rare. The Dow Jones’s two worst days were 12/12/1914, when the market closed down 24.4%, and 19/10/1987, when it closed down 22.6%.

This does not mean that markets don’t trend down or that we do not experience bear markets. These are also natural features of markets. But the world doesn’t just suddenly decide to end on a whim.