Even in Great Years, the Stock Market Has Big drops
Chapter 25 of The Rational Investor
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Chapter 25: Even in Great Years, the Stock Market Has Big drops
Here are two contradictory truths about the stock market.
Most years, the market goes up.
Even in good years, it's usually a painful experience.
When the stock market has a bad day, week, month, or even quarter, it's tempting to think that the wheels are about to fall off, and a bad stretch is a bellwether for a prolonged bear market.
Volatility, and often extreme volatility, is the rule, not the exception to investing in the stock market. It's incredibly rare for the stock market to go up and to the right for an entire year without major dips along the way.
There is always drama.
Dimensional fund advisors put together some data that highlighted how there are significant drops in the market even in good years.
The following chart shows the total return of the Russell 3,000 Index (approximation of the entire U.S stock market) alongside the biggest dip within the same year from January 2002 to December 2021.