“The first rule is not to lose. The second rule is not to forget the first rule.”- Warren Buffett
How many investors remember the stock market decline of 2000-2002? If you had your portfolio invested in the DJIA, you sat through a ~ -38% decline. Preferred the Nasdaq? You experienced a – 75% decline (sorry to bring up those painful memories). How much does a – 75% decline require to get back above water? 300%. Yikes.
Let’s put the DJIA decline into perspective. Surely the most recent bear market ranks as one of the worst bear markets of the previous century, right? Bad news, there have been 9 declines larger than – 40% (with the worst spot belonging to the 1930-1932 decline, a gut-wrenching – 86%).
That works out to approximately one – 40% decline per decade. While stocks may be the best investment “for the long run“, an investor must be able to be comfortable with losing about half their capital every decade to stay the course in equities.
A list of the top 10 DJIA declines since 1900 here.