How many years it will take the S&P/ASX300 index to recover?

Hi All

I have some interesting graphs that show how many years it will take the S&P/ASX300 index to recover at various annual return rates (%). The values are based on the S&P/ASX300 index low of 3134 reached on 6 March 2009.

The graphs can be viewed at my blog:
How many years it will take the S&P/ASX300 index to recover - Blog - CMP Financial Planning Pty Ltd

For example, a full recovery to the index high of 6845 reached on 1 November 2007 would require a return of 29.7% pa over 3 years.

Cheers

 

Hi Andrew,

With the index now about 3765 from the bottom (Yahoo says the bottom is 3063 but this is probaly an intraday low...). Being up 23% (no d.p) in less than 2 months would be an annualised rate of about 138% pa.

Now I certainly don't think that the market is going to go up in a straight line and I don't think 138% is a sustainable. Though I am wondering what everybody is thinking for the future, as some are discussing a "W" shaped recovery.

What does everyone think?

Cheers,

Dan

 

I'm thinking need to make sure they know the difference between real and nominal gains, because if we get back to our 2007 highs in less than 5 years you can rest assured that not all of those gains will be real.

As to the actual questions of "how many years" it completely depends on so many uncontrollable factors to make an even remotely accurate prediction, ie government, central banks, irrational investors. Though if governments and central banks were to step aside and let this thing play out I'd expect it would take somewhere between 5 - 7 years, I see even 10 years being very much in the realm of possibility (look at Japan if you think a 10 year recovery isn't possible).

With that said, I don't expect government or central banks to do nothing, and they could do anything from drag the recovery out by a couple of years with bad spending by government or central banks attempting to control inflation. That said I expect is the more likely outcome will be central banks trying to inflate the debt out of the system stimulatng the recovery to be completed in 3 - 4 years.

 

"Though I am wondering what everybody is thinking for the future, as some are discussing a "W" shaped recovery."

... and if you get any response what are YOU going to do with it?

 

I cant place my hands on it at the moment but I have an article that showed every market correction over the past 100 years and the percentage gain from the bottom in the following 12 months. The figures ranged from 40% - 75% (from memory) gain.

I think that once the bottom has been marked, 29.7% annualised for 3 years would be a very low estimate......time will tell.

 

Here is an interesting tool that shows how long it has taken to recover to from a few market crisis (not all of them!) in the past.

Market crises - Fidelity Australia

After the 87 crash, it took 5.8 years!

Cheers

 

I think its silly to say 'recover to the previous high' cause in reality not many people would have purchased right at the top.. plus the previous years had very high returns, 20%PA+, so the correction simply brought down the overall averages for the previous years, so any recovery needs to be considered along with the previous years unnatural growths.

These type of statistics simply give the wrong impression to the un-educated joe public of the stock market, as it will paint a picture that 'if I put my money into the market, it will take 10 years for me to get it back' which is wrong, cause infact most people would be still ahead, or at least breaking even if they consider previous years growth.. so any recovery now will simply increase their average return.. and leaving most people still ahead..

and look, last 3 weeks has seen a 20% recovery already...

 

Hi crc

I believe the charts are interesting to look at it - take from them what you want.

When I sit in front of clients, they think about how long will it take before their portfolio recovers.

For example, if they invested $100,000 many years ago and it increased to $150,000 before falling back to $90,000 now, they think about when their investment recovers to $150,000 not $100,000. Most people will look at the maximum they could have had - it's human nature.

Cheers

 

its true what you say, however you can't say you have 'lost' anything cause it was never a realized profit. you need to be more realistic, and highlight the previous years they made 20%PA, so the market took some of that profit back to come back to a sustainable return.

You need to consider your time frame in the market, and average the returns over your time in the market.. so even though the last year is down 20%, the previous year it was up 20%.

 

I think people need to be careful when they are comparing history with today. It can be like comparing apples with organes because the reasons for recessions can vary greatly and I think this recession is nothing like recessions of recent past.

So I think people would be much better served understanding "why" we are in really recession and what needs to happen before we get out of it.

 

Your right the reason for this recession is different from the last one and most recessions have different causes which is pretty much a trueism.

List of recessions in the United States - Wikipedia, the free encyclopedia

This list shows a basic overview of the major recessions in the United States, probably not a perfect source being from wikipedia but shows that there were many varying causes for the different recession in the US over the last 150 years. Several involved banking collapses and many involved bubbles that eventually burst.

Every one pretty much caused by something different, the common factor not being what caused the recession but the fact that each recession ended eventually and the sky didnt fall. This recession is probably worse then most others but i dont think ignoring history is smart because history shows that even the worst depression on record ended and the people who claimed capitalism would destroy the country each time were proven wrong.

Im sure there are 10 things about this recession that are different to the ones before but history has shown that the odds of the recession ending and a period of growth ensuing are pretty high. Its just a matter of when the markets will recover to previous levels, which i think will be in 3 years 2 months and 19 days. Just joking I have no idea.

 

I very much agree with your point that ignoring history is always very naive, but in this crisis to compare apples with apples from a historical perspective the 1930's is probably the most recent recession that is comparable, not in the sense of depth or potential severity, but in terms of the "style" of recession, as in the crisis we are having now is similar to what occurred in the 1930s.

I'm not saying this recession will be shorter or longer than the great depression or deeper or shallower (I've already mentioned that there are just too many variables at this stage) but I still don't like reading mass media making comparisons between what we are going through now and what we have gone through in the last 50 odd years, because the last 50 years really isn't very relevant for the most part.