This has been a bit of a rough week for the stock market, to say the least. The combination of Monday and Tuesday saw the iconic Dow Jones Industrial Average lose more than 1,900 points, while the broad-based S&P 500 (^GSPC -1.17%) shed close to 210 points, and the tech-heavy Nasdaq Composite dumped around 610 points.
At the heart of this drop is growing concern surrounding COVID-19, the lung-focused coronavirus that originated in Wuhan, within China's Hubei province, but has spread to a number of new countries in recent weeks. With multiple new cases of the illness reported in South Korea, Italy, Iran, and Iraq, there's the real possibility that this novel coronavirus could become a pandemic.
Should this happen, it not only adversely affects the well-being of people around the world, but it can also hurt the productivity of the countries and businesses affected by COVID-19. With a number of core companies beginning to sound the alarm about weaker-than-expected results in the first quarter (e.g., Apple and Mastercard), Wall Street is waking up the reality that the novel coronavirus could be a difference-maker come earnings time and might even lead to a recession.
This powerful investing statistic will have you feeling much better about your portfolio
While there's clearly a lot of panic on Wall Street right now, there's also one really powerful investing statistic that should allow long-term investors to breathe a sigh of relief as stock market volatility picks up in the short term.
Since the S&P 500 tracking security, the SPDR S&P 500 ETF Trust (SPY -1.16%), made its debut on Jan. 22, 1993, there have been what I estimate to be 6,851 trading days. This assumes 253 trading days per year between Jan. 22, 1993, and Feb. 25, 2020, and subtracts for the four days the market was closed following the tragic events on Sept. 11 in 2001.
On Wednesday, Feb. 19, 2020, the SPDR S&P 500 ETF Trust hit a fresh all-time intraday and closing high. Put in another context, this means that investors who purchased this trust at any point over the past 27-plus years, or 6,847 trading days, would have been up on their position. And yes, this takes into account the very nominal annual expense ratio tied to owning the SPDR S&P 500 ETF Trust.
Yet even after the "beating" the stock market has taken in the days following this all-time high, investors who've purchased the SPDR S&P 500 ETF Trust would still be higher, inclusive of dividends, on 6,798 trading days out of 6,851 trading days. That's right -- even with the S&P 500 shedding 7.6% of its value over a four-day stretch, investors could have purchased on more than 99% of trading days over the past 27-plus years and would still have made money on their position, as of Feb. 25. This statistic demonstrates just how powerful buy-and-hold investing can be over the long run.
Stock market corrections have always been a buying opportunity
And the same holds true if we go even further back than the debut of the SPDR S&P 500 ETF Trust.
Since the beginning of 1950, there have been 37 true stock market corrections in the S&P 500 (i.e., a downside move of at least 10% from a recent high, not including rounding), or one every 1.89 years. Each and every one of these previous corrections in the S&P 500, be they the 10% variety or the "lose nearly half of its value" type, have been firmly put in the rearview mirror by bull-market rallies. In other words, while corrections can be unpleasant in the short term, they're a natural occurrence for the stock market.
More importantly, history has shown that these corrections shouldn't be feared. Rather every last one of these moves lower in the stock market has represented an opportunity to buy high-quality companies or tracking funds at price levels that should look like one heck of a discount 10 or more years from now.
Should you need one last pep talk to consider putting some of your cash to work in the stock market right now, here's something else to consider: Every major pandemic threat this century, such as Severe Acute Respiratory Syndrome (SARS), Middle East Respiratory Syndrome (MERS), Ebola, and the avian flu, temporarily erased between 6% and 12% of the stock markets value over a relatively short period of time (often weeks to a few months). Yet, if you look back at a long-term chart of the S&P 500, I can almost guarantee you that you won't be able to spot the downdrafts associated with any of these scares.
Why, you ask? It's because emotions drive short-term volatility, but reason and earnings growth drive long-term valuations. And that's the meat-and-potatoes secret of why investing in stocks is the greatest creator of long-term wealth -- because reason and long-term valuations always triumph if you give them the proper amount of time.