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1 Crucial Lesson For Investors From The Darkest Day In US’s Stock Market History

Today’s 20 October 2016. 29 years ago, on 19 October 1987, the US stock market experienced a massacre of epic proportions. The S&P 500, a widely-followed US market benchmark, crashed by a stunning 20.5% on that day alone.

The collapse was so brutal that it was – and still is – the single largest daily percentage decline experienced by the US stock market.

But this is what is really interesting about that big crash. In a recent blog post, the renowned investment blogger Eddy Elfenbein looked at the Vanguard S&P 500 Index Fund’s returns going all the way back to 19 October 1987 (the Vanguard S&P 500 Index Fund acts as a proxy for the S&P 500 itself). What Elfenbein found was that an investor who bought the index fund just before the October 1987 market crash would still have enjoyed annual returns of 8.8% from then to 19 October 2016.

That’s a total gain of over 1,150% and is actually very close to what the US stock market has delivered over the long-term. There is a crucial investing lesson here: Time can heal even the sharpest of wounds in the stock market if the businesses underlying stocks are able to continue growing (over the past 30 years, US businesses have grown by leaps and bounds).

We have also seen a similar thing happen in Singapore’s stock market. For instance, back at the start of 2007, shares of healthcare services provider Raffles Medical Group Ltd (SGX: BSL) were trading at S$0.29 apiece and the company was earning S$0.0109 per share.

But at the trough of the 2007-09 financial crisis, Raffles Medical’s share price had reached a low of S$0.019, representing a fierce decline of 34% from where it was at the start of 2007.

Yet, when we fast forward to today, shares of the healthcare company are exchanging hands at S$1.52 apiece and it is earning S$0.0409 per share. Its share price and earnings have increased by 417% and 277%, respectively, from where they began 2007.

In Elfenbein’s blog post, he wrote that “in retrospect, the greatest one-day crash in Wall Street history looks to be a mere speck.” To borrow his words, in retrospect, Raffles Medical’s painful crash during the crisis looks insignificant. Time can do wonders in the stock market when you have a growing business in your hands.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Raffles Medical Group. Motley Fool Singapore writer Chong Ser Jing owns shares in Raffles Medical Group.