23 Years Ago Today

Twenty-three years ago today was Black Monday, Wall Street’s worst day ever. The Dow dropped from 2246.74 to 1738.74—a loss of 508 points or -22.61%.

To put this in some perspective, the second-worst percentage loss was roughly half that (-12.91% on October 28, 1929).

Now let’s take another look at this historic market crash. From the day the market crashed until today, the Dow has gained 540.96%. Add in dividends and it’s up 1,050.32%. (Yes, dividends do that much!) Annualized, that comes out to 11.20%. Let’s not forget inflation which has climbed by 89.95% over the last 23 years, which is 2.83% annualized.

But what if you had invested right before Black Monday, on the previous Friday? (Wow, you’d be one unlucky SOB!) From that starting line, the Dow has gained 395.99%. Throw in dividends and you’re up 750.57%. Annualized, that’s 9.97%.

Now I’m not saying that Black Monday wasn’t a big deal, but viewing it from the very long term adds a new dimension. Calling it right by one day changes your annualized returns from 11.20% to 9.97%. That’s just 123 basis points per year.

So the biggest crash in history isn’t too different from what investors throw away all the time every year with needless trading or exorbitant mutual fund fees.

Bottom line: Using common sense can be just as good as making a once-in-a-century call.

Posted by on October 19th, 2010 at 8:03 am


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