Did you know:
- Share prices rose during 17 (85%) of the 20 economic recessions in Australia in the past 150 years.
- Share prices rose during each of Australia’s last nine recessions.
- The last time a recession was accompanied by falling share prices was the 1938-39 recession (share prices fell by only -1.8%).
- Share prices rose in each of the recent well-known recent recessions – including: Keating’s 1990-91 ‘recession we had to have’, the long 1981-3 recession, the 1975 post-Whitlam dismissal recession, and the 1971-72 oil crisis recession.
The hard part for investors
Although shares prices often fell heavily at around the same time as the economic crises, in almost all cases, the share market fell before the economic contractions and then started to rebound during the contractions. As a result, most of our big share market crashes were not actually during economic ‘recessions’ – not the 55% share crash in the GFC, the 50% crash in 1987, the 60% crash in 1973-4, the 39% mining crash in 1970-71, the 40% fall in 1981-82, nor most of the other big falls.
Conversely, some of the best years for Australian shares have been when the economy was contracting or still weak (albeit after big share falls earlier). For example: 1983, which was the best year ever for Australian shares (up +60%), during the 1981-1983 recession.
The hard part for investors is having the courage to buy shares when the economy is still contracting and the media headlines are full of doom and gloom about a cascade of corporate collapses, bankruptcies, and rising unemployment.
And, of course, deciding if this time really is different!