If you pull up a Dow Jones Industrial Average (DJ) chart for the past year, you'll see nothing but an upward trend. Oh, sure, there were a few times when the market dumped (like on the 5th of this month), but rallies followed in every single case. Otherwise the DOW wouldn't have broken new highs. But, sometimes the ups and downs were so fast that investors became dizzy.

If you think about it, there's never been a time when all things were fine. Something somewhere is always happening, but some investors will react in a panic and sell when the market slides in reaction to a crisis. This is the time for bargain hunters who have stuck to their guns (and wits and a little extra cash to accumulate).

The following list is a little gift to those who have stuck by their portfolios and research accumulated when the markets were down. This list shows incidents that occurred throughout the world since 1914, and the first percentages show the gain or loss on the day the crisis was announced. The second figure shows the gain or loss twenty-two days later. Yes, that's 22 days, or less than a month:

 

7/22/1914	Stock Exchange Closed (WWI)	-10.2%	10.0%
9/15/1920	Bombing at JP Morgan	-5.5%	2.4%
5/9/1940	Fall of France	-17.1%	-0.5%
12/6/1941	Pearl Harbor	-6.5%	3.8%
6/23/1950	Korean War	-12.0%	9.1%
10/30/1956	Suez Canal Crisis	-1.4%	0.3%
10/3/1957	Sputnik	-9.9%	5.5%
10/19/1962	Cuban Missile Crisis	1.1%	12.1%
11/21/1963	JFK Assassination	-2.9%	7.2%
4/3/1968	Martin Luther King Assassination	-0.4%	5.3%
4/29/1970	United States Bombs Cambodia	-14.4%	9.9%
10/18/1973	Arab Oil Embargo	-18.5%	9.3%
8/9/1974	Nixon Resigns	-17.6%	-7.9%
11/2/1979	Iranian Hostage Crisis	-2.7%	4.7%
12/24/1979	U.S.S.R. in Afghanistan	-2.2%	6.7%
10/24/1983	United States Invades Grenada	-2.7%	3.9%
10/2/1987	Stock Market Crash of 1987	-34.2%	11.5%
12/15/1989	Invasion of Panama	-1.9%	-2.7%
8/2/1990	Iraq Invades Kuwait	-13.3%	0.1%
1/16/1991	Persian Gulf War	4.6%	11.8%
8/16/1991	Gorbachev Coup	-2.4%	4.4%
2/26/1993	World Trade Center Bombing	-0.3%	2.4%
4/19/1995	Oklahoma City Bombing	1.2%	3.9%
10/7/1997	Asian Stock Market Crisis	-12.4%	8.8%
8/7/1998	United States Embassy Bombings in Africa	0.0%	-11.2%
9/11/2001	Sept. 11 Terrorist Attacks	-14.3%	13.4%
1/31/2002	Enron Testifies Before Congress	-3.0%	10.5%

As you can see from the information above, the only incident that didn't improve within 22 days was the U.S. Embassy Bombings in Africa. But, within 63 days after those attacks, the market was up by 4.7%, and within 126 days, the market was up by 6.5 %.

This chart was printed in David Bach's book, Start Late, Finish Rich. The point that he was making, and one that I'll reiterate, is that if investors don't panic when something "terrible" happens, then the stocks will recover eventually (and so will the investor). Sometimes - as shown above - the recovery is swift. Other times it takes a few more weeks, maybe months, to heal.

Bach's chart goes further out than I did - he takes each incident out to 63 and 126 days, so it's easy to see how the markets reacted to each incident and how long the healing took. Of course, the aftermath from each incident also plays a heavy hand in how the market reacted.

For instance, one of the first dramatic recoveries over a 126-day period occurred with the first crisis on the list - the closing of the stock exchange for WWI. From 7/22/1914 to 12/24/1914, the market went from a ten-percent loss to a 21.2% gain. In fact, the gain after that crisis equaled a full 31%.

A full 10% gain occurred 126 days after France fell in 1940, and the market saw a 12% gain 126 days after John Fitzgerald Kennedy was assassinated. The most amazing gain occurred within 126 days after the 1997 Asian Stock Market crisis. The markets went from -12.4% to 25.0%?a gain of almost 40% within four months!

And, when the stock markets dove to -14.3% on 11 September 2001, it took all of 126 days for the market to push upwards to a 24.8% gain.

While no one can predict a crisis, let alone what the markets will do during that crisis, the speed of the recovery is just as obscure. Hindsight is the only sight that's a full 20/20, and the viewer can skew that perspective as well. But, history shows that the markets seem much more resilient than its investors.

So take this list to your first holiday party and show your friends why you don't panic when a crisis hits Wall Street. You can shrug over the housing meltdown and yawn over high oil prices. In fact, you can play Tiddlywinks as the Feds continue to keep an eye on inflation possibilities. You're the super investing hero, and you deserve a pat on the back for holding on when all others wimped out (and no, you don't have to tell them that you couldn't get online during the crisis to sell because your airline was circling New York City for eight hours?).

Until Next Week,
Linda Goin

The securities markets are subject to the risks of fluctuating prices and the uncertainty of rates of return and yields inherent in investing and past performance is no guarantee of future results.