HQ TrustMarch 3 2021

HQ Trust’s Chart of the Week: How quickly shares recover from setbacks

2 mins read

Written by Sven Lehmann, HQ Trust Portfolio Manager

To view this article in German please click here.

Very few shares move from one all-time high to the next: of course, there are always setbacks in the meantime. A long-term analysis by Sven Lehmann shows which setbacks investors should expect – and how small they usually are.

As part of his analysis, the HQ Trust fund manager examined the losing periods of the past 25 years. During this period, Datastream’s global equity index has given investors an average annual return of 8.4 per cent. Was this an exceptionally good period? No! After all, there have been wars, terrorist attacks, financial crises and a global pandemic in those 25 years. None of this leaves stocks untouched.

How high a loss could be

  • “In almost 90 per cent of cases, the maximum loss suffered until the next all-time high was less than 5 per cent – so nothing that would make a long-term investor nervous.”
  • “In the other loss phases, the decline was below 10 per cent in a good 50 per cent of the cases. Seven times it was still below 30 per cent.
  • “However, the investor also lost a good half of his assets twice. The highest maximum loss was 56 percent: the crash after the dotcom bubble.”
  • How long it took for shares to recover
  • “In about 85 per cent of the cases, the index reached a new all-time high within one month.”
  • “Even with the other losing streaks, investors mostly had to wait less than a year before the next all-time high was reached.”
  • “Only the remaining three phases took much longer: the longest lean period, which lasted 6 years and 9 months, ended in May 2007.”

Conclusion

  • “It sounds like a truism, but the good returns from equities go hand in hand with bearing losses.”
  • “Most periods of loss, in terms of the size of the fall in prices and its duration, are easy to bear for long-term investors.”
  • “For the few other cases, the often quoted sleeping pills by stock market veteran AndrĂ© Kostolany would not be the worst recommendation.”