Three things to know about the stock market

Published on December 31, 2015   18 min

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Hello, I'm Ramon DeGennaro. I'm the Haslam Professor of Banking and Finance, at the University of Tennessee.
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Just how "good" is a "good" year for stocks, and just how "bad" is a "bad" year? The answer to the "good" part is really, really good. Sadly, the answer to the "bad" part is really, really bad. I recommend that you be seated for this next part. Between the years 1926 and 2012, the best one year return was in 1933. Stocks returned almost 58 percent. The worst one year return was in 1931, a loss of almost half, just under 45 percent. Now some of you are thinking, at least, the downside is less damaging than the upside. Think again! If you start with $100 and suffer a 50 percent loss, then you have $50. It takes a gain of 100 percent to make up for that 50 percent loss. Those numbers are saying that the worst year and the best year, just about cancel each other out. You'd have about 90 cents, if you started with a dollar, and then experienced the best year and the worst year back to back.