6 Months Are Responsible For All of the Gains in the U.S. Stock Market Since 2000

In the 1987 film Wall Street, Bud Fox, a rising stock broker looking to win over the legendary financier Gordan Gekko, says:

“Life comes down to a few moments. This is one of them.”

Little did he know how right he would be about not only personal success, but also investing success. This week’s post uses U.S. stock market real prices and dividends from 1871–2016. The data come from Robert Shiller (you can read about his methodology and how the data was constructed here).

If you want to understand what I mean by a “few” moments consider this: From January 2000 to December 2016 there were 204 months, however, only 6 of them (less than 3%) are responsible for the entire real gain in the S&P 500 (with dividends reinvested). The remaining 97% of monthly returns net each other out. See here:

top-monthly-returns-2000

The positive green bars are canceled out by the negative red bars and the remaining blue bars taken together are the return that the investor would have gotten had they been fully invested over the entire time period. This might shock you, but if you know any market history, January 2000 was near the height of the tech bubble, so the above statistic is slightly biased.

If we look at the distribution of these returns you can see that there are larger negative returns that tend to dominate the many smaller positive returns. You can see this visually as the red bars (real returns) do not match up with the black line (the approximation of a normal distribution):

hist-returns-2000

However, as I said before, this time period is slightly biased as I am starting near a market peak in 2000. For a more balanced time frame, consider the real returns over the period January 1871 to December 2016. Over this period, 7% of all monthly returns represent the entire real gain in U.S. stocks:

top-monthly-returns-1871

This is not as shocking, but it is harder to have any frame of reference for this period given it was so long ago. If we look at the distribution of returns these also do not exhibit normality either:

hist-returns-1871

Now, this analysis is not necessarily a new idea. In 2014, JPMorgan Asset Management found that the 40 best days accounted for more than the entire S&P 500 return from 1993–2013. Additionally, in the last few weeks Hendrik Bessembinder published a paper showing how 4% of all stocks listed accounted for the entire excess return over Treasury Bills since 1926! I highly recommend you read this paper if you are interested in investing.

The main point is that investing success is dominated by a smaller number of events/stocks representing most of the gains in the market. This is why market timing and stock selection can both be losing propositions for most investors.


How to Not Miss Out on Those Few Moments

The best way to make sure you win big is to stay invested in the market as much as possible. “Don’t dance in and out” in an attempt to time the market, as Warren Buffett says. This is even more true when times look tough. In the data I presented above from 1871–2016, the 5 most positive monthly returns in S&P 500 history came in the 1930s as the U.S. came OUT of the Great Depression. As they say, “The night is darkest just before the dawn.”

Thank you for reading!

If you liked this post, consider signing up for my newsletter.

This is post 09. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media)  reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Please see disclosures here: https://ritholtzwealth.com/blog-disclosures/

OfDollarsAndData.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com and affiliated sites.