Morningstar - Q2 2021 - 43

EXHIBIT 2

That Didn't Hurt (Much) Among the 18 bear markets that occurred in the past 150 years, the COVID-19 crash had the smallest
decline and quickest recovery, making it the least painful.
The U.S. Market Crashes With Inflation-Adjusted Declines of 20% or More, Ranked by Pain Index, January 1871-March 2021
Pain
Rank

Pain Index
(%)

Decline
Rank

Decline
(%)

November 1936

79.00

Crash of 1929, 1st Part of Great Depression

Peak

Trough

Recovery

August 1929

May 1932

Event(s)

100.00

89.34

June 1911

December 1920

December 1924

50.96

WWI, Influenza, Postwar Auto Bubble Burst

85.51

August 2000

February 2009

May 2013

54.00

Lost Decade: Dot-Com Bubble Burst, Global Financial Crisis

80.41

December 1972

September 1974

June 1983

51.87

Inflationary Bear Market, Vietnam, Watergate

59.57

February 1937

March 1938

February 1945

49.93

2nd Part of Great Depression, WWII

29.06

May 1946

February 1948

October 1950

37.18

Postwar Bear Market

14.22

November 1968

June 1970

November 1972

35.54

Start of Inflationary Bear Market

8.23

January 1906

October 1907

August 1908

34.22

Panic of 1907

8.18

April 1899

June 1900

March 1901

30.41

Cornering of Northern Pacific Stock

7.73

August 1987

November 1987

July 1989

30.21

Black Monday

6.25

November 1886

March 1888

May 1889

22.04

Depression, Railroad Strikes

5.00

April 1903

September 1903

November 1904

21.67

Rich Man's Panic

4.80

May 1890

July 1891

February 1892

20.11

Baring Brothers Crisis

3.55

December 1961

June 1962

April 1963

22.80

Cuban Missile Crisis

3.20

August 1897

March 1898

August 1898

21.13

Boer War

3.14

October 1892

July 1893

March 1894

27.32

Silver Agitation

3.11

September 1909

July 1910

February 1911

20.55

Enforcement of the Sherman Anti-Trust Act

1.00

December 2019

March 2020

July 2020

20.00

COVID-19 Pandemic

Sources: See Exhibit 1. Data as of 02/28/21.

Not All Crashes Feel the Same
In last year's article, I developed the " Pain Index "
to measure how bad each episode of decline
and eventual recovery was. There's more detail
on the methodology there, but essentially, the
index compares each crash with the worst one in
the data: the crash of 1929 and the beginning
of the Great Depression. It accounts for both the
magnitude of a crash and how long the decline
and its subsequent recovery took.
E X H I B IT 2 sorts these market crashes by how
painful they were and is updated to include
the COVID-19 crash. We can see that in terms of its
impact on the stock market, the COVID-19
crash was the least painful of the 18 crashes, due
to its quick recovery. With a Pain Index of only

1%, it was only a fraction as severe as the major
crashes of this period.

At the time of the crash, of course, we didn't
know how it was going to turn out. Some
investors panicked and sold off their stock holdings
and could only get back into the market at
higher prices.
Risks and Rewards
It just goes to show that markets are unpredictable
and that not all crashes are alike in their
severity and duration. Calling the market's peak or
bottom is very hard. The best bet is to prepare
now for the next crash by owning a well-diversified
portfolio that fits one's time horizon and
risk tolerance.

What I wrote at this time last year rings truer
than ever: " Market risk is about more than
volatility. Market risk also includes the possibility
of depressed markets and extreme events. These
events can be frightening in the short term,
but this analysis shows that for investors who can
stay in the market for the long run, equity
markets still continue to provide rewards for taking
these risks. " K
Paul D. Kaplan, Ph.D., CFA, is director of research with
Morningstar Canada. He is a member of the editorial board
of Morningstar magazine.

morningstar.com/lp/magazine

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Morningstar - Q2 2021

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