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The S&P 500 Roller Coaster

Every summer my sons and I go to Cedar Point.  We do the major rides as we all thoroughly enjoy roller coasters and the rides where we “lose our stomachs” like Maxair and Skyhawk.  Unfortunately, I am the only one who enjoys a trip around the park on the train.  I actually spent a summer in college working at Cedar Point and I worked on the train as a fireman (I threw coal into the engine’s furnace to keep the boiler going).  I saw a chart recently on bear and bull markets and it reminded me of roller coasters.  I started wondering what kind of coaster would it be if one was replicated to mirror the S&P500 over the last 60 years.

Let’s start with the basics.  The main assumption here is a bear or bull market is any move of at least 15% which lasted at least 3 months.  Bear markets will be the drops on the ride while bull markets will be the climbs up.  Every month is a second and each percentage change is a one-foot drop.  In total there are 11 moves up and 11 moves down for the respective markets.  So, how does this coaster do?

The first part of our ride is rather average.  We have 7 bear markets and they average drops of 22 feet taking an average length of 15 seconds to get through.  There is an outlier drop of 43 feet that lasted 21 seconds.  In between the bear market drops there are 6 bull markets where we climb the hills of this coaster.  These climbs take an average of 35 seconds to complete and we go up roughly 82 feet each time.  The actual hills range from 52 to 104 feet, with the peak of three of them being within 4 feet of one another.

The second half of the ride gets a bit more interesting.  The first bull climb takes a minute and we go up 280 feet.  This part of the ride is on a Monday in 1987 and the bear drop takes 3 seconds to drop 30 feet.  Our next hill climb takes 30 seconds to rise 72 feet.  This is followed by a 15-foot drop lasting 5 seconds.  After these drops we have our longest and highest climb lasting 118 seconds to go up over 500 feet.  From this height I am pretty sure I can see Canada!  I feel the internet bubble burst and we spend 25 seconds dropping 45 feet, which is the second largest drop on this ride.  We start our next ascension of over 100 feet and it takes 61 seconds to reach our peak.  From here I can see all kinds of new homes being built before we have our biggest drop of over 50 feet and the ride down takes 16 seconds.  We then start to climb up our current bull hill.  During this current climb we have gone up another 230 feet over the last 87 seconds, which is the second longest bull climb in this 60-year ride of the S&P.  I’m not sure when the next bear drop will be or how long it will last before we climb again, but so far each time we dropped the ride up has been much longer and higher than the previous drops.

What did we learn during this 60-year coaster?  The average bull climb was over 150 feet (156% growth) and the average climb took over 50 seconds (51 months).  On the flip side, the bear drops averaged 27 foot falls (27% drops) and lasted 14 seconds (14 months).  If this were an actual coaster it would be a terrible design.  However, we all know bear markets are some of the worst feelings in the world.  I have read they feel 4 times worse than any bull market. Fortunately, the history of the market has shown us the ride always goes back up.  The question is how many of us have the fortitude to stay on the ride?

About Dan Johnson, CFP

I am the President and CCO of Forward Thinking Wealth Management, LLC, which is the flat-fee financial planning firm located in Akron, OH, and set up to work virtually with clients across the country. I charge clients a flat fee of $4,800 regardless of asset size. My firm is a solution to what I feel is a broken system where clients pay advisors based on something out of their control - the performance of the market.
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