NC State Economist Dr. Mike Walden – “Does Everything that Goes Up Also Come Down?”


Mary:  I’m Mary Walden, with economist MW, welcoming you to the economic perspective. Today’s program asks, does everything that goes up also come down?  Mike, with the recent big dips in the stock market, some people are talking about another market crash.  They think the market has become a speculative investment bubble, and it primed for a sharp downturn.  Is this a legitimate worry for investors?

Mike:  Summary Answer

  1. Certainly a legitimate worry, but a new study may bring some calm
  2. Study addressed a straightforward question – does any investment market that has experienced a big gain automatically set itself up for a big crash
  3. That is, do bubbles always turn in to busts
  4. After looking at data for over a hundred years and for scores of countries, answer is: not always
  5. For example, found that a stock price that had an increase of over 100% in a five year period gave back those gains in only 15% of the time
  6. Also found that after suffering a 100% drop, in 26% of the time a stock will recover all of that loss within the next five years
  7. Lends support to the viewpoint of taking the long-run approach to investing
  8. I’m MW

Mary:  And I’m Mary Walden for the North Carolina Cooperative Extension Service