Unexpectedly Intriguing!
October 10, 2008

What would it take for the recent drop in the U.S. stock market to become the worst ever?

To find out, we went into our data of the average monthly index value for the S&P 500 for each fully completed month since January 1871. We next found the rolling rates of return for investments ranging in length from one month long to ten years long by one month increments all the way through to the present day, generating rates of return for some 191,220 periods of time.

In doing this, we factored in dividend reinvestment but not inflation to find the absolute worst rates of return for each investment holding period length in nominal terms. Doing so does two things for us: it keeps the math simpler and puts the results in terms that a normal investor could actually see.

Once we had the absolute worst rates of return for all those investing periods ranging in length from one month to ten years long, we next found out what the average of all the daily closing values for the S&P 500 would have to be for the month of October 2008 to make this month cap off the worst drops ever in stock market history for each of those periods.

Our results are summarized in the dynamic table below. You can sort the data in the table by clicking the column headings:

Average of Month's Daily S&P 500 Closing Index Values Needed to Make October 2008 the Worst Ever for Investment Holding Periods Ranging from One Month Long to Ten Years Long
Holding Period [Months] Holding Period [Years] Worst Ever Annualized Return for Holding Period "Worst" Average Monthly S&P 500 Index Value
1 0.08 -97.4% 896.10
2 0.17 -91.6% 844.54
3 0.25 -87.4% 743.66
4 0.33 -78.1% 795.31
5 0.42 -70.4% 836.36
6 0.50 -68.9% 755.90
7 0.58 -70.7% 634.97
8 0.67 -66.8% 640.30
9 0.75 -68.0% 576.64
10 0.83 -69.4% 540.83
11 0.92 -66.9% 520.89
12 1.00 -62.3% 568.24
15 1.25 -61.5% 449.00
18 1.50 -50.6% 493.23
21 1.75 -53.4% 361.91
24 2.00 -49.3% 337.01
27 2.25 -47.7% 280.20
30 2.50 -41.5% 325.04
33 2.75 -46.1% 221.23
36 3.00 -40.2% 240.71
39 3.25 -36.5% 262.27
42 3.50 -32.8% 271.67
45 3.75 -28.8% 307.39
48 4.00 -25.1% 325.54
51 4.25 -23.0% 336.17
54 4.50 -20.8% 364.41
57 4.75 -19.2% 378.03
60 5.00 -17.3% 366.84
63 5.25 -15.7% 368.54
66 5.50 -16.3% 302.70
69 5.75 -13.0% 361.54
72 6.00 -11.8% 360.39
75 6.25 -9.9% 420.30
78 6.50 -9.0% 534.97
81 6.75 -7.5% 599.04
84 7.00 -6.2% 608.56
87 7.25 -5.3% 714.79
90 7.50 -4.7% 729.35
93 7.75 -4.7% 802.76
96 8.00 -5.9% 742.13
99 8.25 -6.9% 710.55
102 8.50 -7.2% 669.59
105 8.75 -6.9% 657.17
108 9.00 -5.1% 697.47
111 9.25 -4.4% 779.48
114 9.50 -4.3% 750.16
117 9.75 -4.7% 667.30
120 10.00 -4.0% 583.25

To help put the various market declines into perspective, here's a chart showing the entire history of the S&P's average monthly index values against the index' trailing year dividends per share, including a data point for the average in October so far (through 9 October 2008):

S&P 500 Average Monthly Index Value vs Trailing Year Dividends per Share, January 1871 through September 2008, with Average through 9 October 2008

The chart above is somewhat misleading on the scope of the market's decline given its exponential growth through most of its history. To help put that scope in better perspective to account for that exponential growth, the chart below shows the same data on logarithmic scales for both axes:

S&P 500 Average Monthly Index Value vs Trailing Year Dividends per Share, January 1871 through September 2008, with Average through 9 October 2008, on Log-Log Scales

We've highlighted a couple of notable periods of large peaks and drops on the chart, including that for the Great Stock Market Crash, which coincided with the beginning of the Great Depression in the United States.

Note: We've presented this data previously in our post introducing our Worst Case Investing Strategy, but decided this particular data deserved its own stand-alone post to highlight it.

As for that investment strategy, we find that Michael Stastny has got the guts needed to put it into action!

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