The Pain Gap

Earning returns vs. enduring returns.

By Morgan Housel

The biggest story in investing is understanding why so many people have been hurt by, and are skeptical of, a market that has increased 18,500-fold in the last century.

Financial advisor Carl Richards dubbed what he calls “the behavior gap,” which is the difference between what the market returns and what the average investor earns. It’s caused by people’s tendency to chase returns at the top only to get scared out at the bottom.

There’s another gap that helps explain why generous markets are full of skeptics. I call it the pain gap.

The pain gap is the difference between what the market returns in a year and what it did during that year.

Here’s one way to think of it: Since 1925 the S&P 500 has returned about 10% a year. But the average difference between a year’s highest and lowest close is more than triple that amount, 31.6%.


This is just a different way to think about volatility. But volatility is one of the hardest things for investors to contextualize. It’s one thing to tell investors that bear markets are normal, or to be prepared for a pullback. It’s another to wrap your head around the idea that even during the best years, there can be a huge gap between what the market gained and what it did.

Take 1998. It’s glorified as part of the late 1990s stock boom where markets went one way – up. Sure enough, the S&P soared 28% in 1998, one of the biggest gains of all time.

But 1998 was actually a vicious nightmare for most investors. It started with a 20% surge by July, then gave everything back and was down for the year by October, only to log one of the best quarters in history to finish the year up 28%.

In isolation 1998 is the kind of year investors dream about, and financial marketers use to show how lucrative investing can be. But actually living through 1998 meant waking up every morning wondering what the hell was going on, not knowing if the next 90 days meant you’d make or lose a third of your life savings. That’s the pain gap.

It’s the same in every bull market.

The easy narrative of the last seven years is that stocks have gone straight up, which is what it looks like if you zoom out far enough. The S&P 500 is up 164% since 2009, and has increased in each of the last seven years.

But the last seven years have actually been pretty nuts. The market has been below its previous one-year high on 87% of days since 2010, and more than 10% below its previous high on about 11% of all days:


The pain gap shows up everywhere, even during declines.

A lost decade doesn’t mean you go 10 years without making any money. It means you make and lose several fortunes, each successive one tearing away at your faith and patience.

A bear market doesn’t just mean stocks go down. It means they frequently have huge rallies amid the backdrop of decline, offering hope and optimism every few weeks that’s snatched away just as fast.

The pain gap helps explain why the behavior gap exists. Markets look phenomenal and rewarding when you zoom out, because they are. But people don’t live zoomed out. They live day to day, month to month, brokerage statement to brokerage statement, where even the best of times come with the constant sting of reminding you that markets owe you nothing without requiring patience and endurance in return.

You May Also Like

Pride Week Festival Begins With Tribute to Pulse Nightclub Survivor

Miami Beach Pride’s week-long festivities will commence with a special tribute to the LGBTQ+ community honoring the victims of the tragic shooting at Pulse Nightclub in Orlando. A ceremonial “flip

Surfside luxury condo sees notable sales

Arte at Surfside is making waves. There’s, of course, the news that Ivanka Trump and Jared Kushner are renting at the 16-resident luxury condominium. And there’s the December penthouse sale

Up in the Air: A Discussion

In a dynamic region where residents are typically on the move, everyone is wondering about the health of the airline industry and the safety of airports and airplanes. Everyone is

South Florida Yachting Legend Passes

Robert “Bob” Roscioli, an icon in the South Florida marine industry, has passed away. Many recognize the name Roscioli from the widely-successful and world-renowned Roscioli Yachting Center, a full service

Other Posts

Four key steps

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] What a crazy time we are all experiencing. Right now, getting back to basics is most important. It is not and

Pandemic adds to worries about hurricane season

An above-normal 2020 Atlantic hurricane season is expected, according to forecasters with NOAA’s Climate Prediction Center, a division of the National Weather Service. The outlook predicts a 60% chance of

The difference between leading and managing

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] Leadership and management are often misunderstood as one in the same. They are not. Certainly, a good leader should be able

Flattening the housing curve in a pandemic

By Josh Migdal In the classic film Groundhog Day (and yes, it is a classic), Bill Murray’s character wakes up over and over again in Punxsutawney, Pennsylvania, reliving the same

Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.