The Flinchum File

Thoughtful Economic Analysis and Existential Opinions
Subscribe to the Flinchum File
View Archives

The Problem with Averages

05/21/2009

I was reading a marketing piece from one of the mass market financial advisors. His argument was that since the average recession since the Great Depression has been 21 months and since the stock market has been up an average of 45% twelve months later and since this recession is now officially 19 months old, then it must be time to get fully invested in stocks. Averages can be so misleading!

Over the same period, recessions have ranged from 3 months (twice) to 62 months. Credit-driven recessions, like this one, tend to be longer than inventory-driven or trauma-driven recessions. Also, the average bounce-back of 45% twelve months later has been declining markedly. The first 3 recessions bounced-back an average of 72% while the last 3 only bounced back 25% on average.

Averages can be so misleading! Like every investor, every recession is unique and should be evaluated individually!

We are a fee-only advisor providing best interest fiduciary services to clients
in Chesapeake, Newport News, Norfolk, Suffolk, Virginia Beach, Williamsburg, and the surrounding areas of Hampton Roads.

CONTACT BAY CAPITAL ADVISORSWe Will Respond Promptly

Contact Us Bottom