A Two Year Recession

The last U.S. recession was 2001-2003. This was due to the dot-com bubble burst and in part to the Sept. 11th attacks. Going back to the 1930s, most recessions last about 2 years, except The Great Depression when an astounding 25% of Americans were unemployed. Ouch!

If a recession does come, will this one be any different? History says, "No!" It'll last about 2 years.

In addition, a recession doesn't necessarily mean there will be a bear market.

Take a look at the following chart from Vanguard:

Recession		Real S&P 500 Return*
July 1953–May 1954		23.10%
August 1957–April 1958		–3.64%
April 1960–February 1961		19.02%
December 1969–November 1970		–6.96%
November 1973–March 1975		–22.82%
January–July 1980		3.64%
July 1981–November 1982		7.11%
July 1990–March 1991		4.59%
March–November 2001		–1.70%

*Adjusted for inflation

Why? Because you are not investing in an economy or a country. You're investing in a company. If stocks are cheap, they're cheap. On the other hand, one of the worst stock market crashes happened in 1987. The Dow Jones lost 22.6% in one day. lol There was no recession in 1987, just expensive stocks.

Also, stocks usually decline 6-18 months prior to a recession. Remember 1997? Well, Korean stocks dropped 30% in 1996. Here are the total returns for a Korean Stock Fund since 1985:

Year	Share Price
1985	25.65%
1986	91.87%
1987	68.03%
1988	68.27%
1989	38.19%
1990	-56.46%
1991	4.09%
1992	13.13%
1993	71.52%
1994	-4.64%
1995	6.89%
1996	-30.06%
1997	-53.19%
1998	40.94%
1999	83.78%
2000	-37.01%
2001	41.31%
2002	13.05%
2003	34.50%
2004	34.78%
2005	51.20%
2006	16.88%
2007	14.09%

The fund's average return since 1985 is 14.62%

What does this mean to you? Invest in stocks during a recession. In 1998, Korean stocks returned 41% and in 1999 soared 84%.

Am I the only one looking forward to the next recession? =)