Statistics you should know before going public

Investors looking to invest in equities can get lost in a myriad of data and indicators that reflect market momentum. However, we are going to try to broaden our sights, and offer long-term stock market statistics to glimpse a more structural idea of ​​its reality.

The first thing we should know is that, in the long term, there is no more profitable investment alternative than equities. If we collect the historical data of the american stock market from 1800 to the present and discounting inflation, we have the following results:

As we can see, there is a significant historical difference between the returns provided by variable income and fixed income derived from the risk premium between both financial instruments that is quantified at 3.3 percentage points.

And it is that bonds are characterized by the fact that final payments are guaranteed by the borrower. With these investments, there is a specific maturity date, on which the principal is repaid to investors, along with interest payments linked to the interest rates that existed at the beginning of the loan.

Therefore, if you want to access the property of the company (shares), that higher risk must be compensated in the long term in its profitability and directly benefited from business growth.

From 1928 to today, we have seen a total of 13 bear markets. A bear market is defined as a decline of 20% or more from the previous market high. The return of the corresponding market is the one that goes from the maximum to the minimum during the cycle. statistically, bear market is 22 months long and 42% drop from peak to trough.

On the contrary, bull markets tend to last 54 months and bring a return of 166%. Although in this case we find two periods that break the metrics: the one that started in 1990 until 2000 added a cumulative return of 419% and the one that emerged after the Great Crisis (March 2009) until the COVID-19 crisis (February 2022) with a profitability of 401%.

Investors tend to chicken out on market downturns and red years. However, the statistics of the last 40 years give us positive returns in 30 years. And to have a reference of market corrections, the average is setbacks of 13.9%.

If we enter the field of assessments of the most relevant ratioshistorically the Price-Earnings per share (PER) ratio has averaged 15.97 times, the Price-Book Value (P/B) ratio has been 2.94 times and the dividend yield has been 4.28% .

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