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The Equitymaster Research Digest

The More Blood There Is in the Streets, the More You Should Invest
May 4, 2016

  • The coming bull market in emerging market stocks
  • How to prepare your portfolio for the Sensex 70% upside
  • A Precision Castparts-like recommendation for the Indian markets

When was the last time you saw the Sensex fall for two consecutive years?

I have data going back 20 years, and it's only happened once. In 2000 and 2001, the Sensex tanked 20.6% and 17.9% respectively.

It's surprising that the index was down two years in a row only once in 20 years.

Isn't the stock market far more volatile than this? Shouldn't there be more cases? Turns out, the numbers tell a different story. The indices have a down year every now and then, of course. But two negative years on the trot has happened only once.

I agree that 20 years is not very significant statistically. It would be interesting to see the yearly movements of stock markets going back many decades across various countries.

Thankfully, an investment strategist called Meb Faber has done just that. But the results aren't very different from our 20-year sample.

Two consecutive down years is rare. Rarer still is three consecutive down years. As per Mr Faber, it's happened just six times in 378 years, or less than 2% of the time. Four consecutive down years occurs only 1% of the time. And five down years in a row almost never happens.

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