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After a decade of rising stock markets investors get statistically confused

A couple of days ago not only ended 2019 but also one of the greatest decades for stocks. There was no shortage of experts pointing to the extraordinary gains that investors were able to make – and how lousy the prospects for further gains were.

I do think, many of them miss a very important point. Sure, stock markets had a winning streak from 2010 to 2019 with US indices leading the pack: The S&P 500 almost tripled over the last 10 years. But what people tend to forget is how this bull markets started: From the ashes of the great recession in 2008/2009. Before his glory decade, the S&P tanked more than 55 percent in a panic that was not seen since the 1930s! A big part of that rally was just getting back to normal.

Things get even more unspectacular when looking at global markets:

The MSCI World All Country Index “only“ gained 90 percent in the last 10 years. And it took the index till September 2013 to get back to the levels of 2008. One could argue that this was the official start of the bull market, not March 2009. And although it feels like a straight way up from here in hindsight, investors lived through some hard times – if they did hold on to their stocks.

From May 2015 to February 2016 global stocks lost 19,5 percent as they did from January 2018 to December that year. The only reason we are talking of one of the greatest bull markets of all time is the fact that those two break downs stopped 0,5 percent short of the 20 percent threshold that defines a bear market for some reason.

So, where does this leave investors for the next decade? My bold prediction: There will be ups and downs, some of them will be called bull market, some bear market. But don´t get yourself fooled by arbitrary statistical thresholds and the headlines that come with them. If a bear market would be called after a 15 percent downturn, we would have experienced one in 2018, would have only recovered the losses in November 2019 and at the moment experience a young and fresh bull market only 6 weeks old.Enjoy the ride.