The Importance of Understanding Market History

January 31, 2015
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With all that’s going on in the world, I know some people are feeling skittish about the stock market. But let’s not lose perspective or abandon your long-term investment plan because of that.

There’s a great Warren Buffett quote that may help: “In the 20th century (and 21st), the United States endured two world wars (9/11) and other traumatic and expensive military conflicts; the Depression (and Great Recession); a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president and the Dow rose from 66 to 11,497 (17,279). I updated it with the information in parenthesis.

Going forward the financial markets will continue to fluctuate and any reasonable investor should expect a market decline of 10% or more most years (despite nothing of the sort the past 3 years). Perhaps that time is upon us.

There’s no rule that says the future has to resemble the past, but understanding the past is certainly helpful in interpreting future market events, and most importantly, preventing you from doing anything irrational because of them.

Check out the short video above to increase your intelligence around investing and read this article on Understanding Market History to understand the frequency and magnitude of declines you can expect as an intelligent investor.

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