SAN ANTONIO (IndexRx) -- I just finished a telephone conversation with a friend who works for a large brokerage firm. He describes the typical mindset among his clients at the moment as one of panic and despair.

The average investor, it seems, is considering giving up on the stock market and burying his money under a mattress (or in money-market funds). Should you, too, be thinking about the exit?

At times like these, I always turn to history.

By historical standards, Monday's 504-point decline in the Dow Jones Industrial Average DJIA, -0.47% was indeed large -- the 86th-largest one-day percentage loss since 1928, and the 17th-biggest since World War II. Does this mean it's time to jump ship?

To answer, let's look at the 16 postwar declines that were larger and ask the following question: What happened afterward? The answer may surprise you. It should certainly prevent you from shouting panicked sell orders at your broker.

I calculated several averages for all 16 declines that were larger than Monday's 4.4% drop. On average, the Dow was 10.4% higher six months after the decline, 13.8% higher one year after, 27% higher two years after, and 45.6% higher five years after. By contrast, investing in the Dow on any random day from Jan. 2, 1946, through Monday's decline would have yielded 37.9% over on average over a five-year period.

Some would argue that Monday's drop was not large enough. In other words, the market had not "capitulated" and thus was likely to see further declines. This may well be the case. But, interestingly enough, if we again crunch some numbers for the 16 largest one-day declines, the correlation between the size of the initial decline and the size of the subsequent rise, though negative, was relatively low.

R-squared statistics are small (0.01, 0.05, 0.18, and 0.05 for six-months, one-year, two-year, and five-year periods, respectively). One way to interpret this is that, as long as the drop is large, it doesn't seem to matter how large -- the market is likely to bounce back strongly in the near future.

So, if history is any guide, you would be foolish to succumb to panic. In fact, you might even want to increase your holdings. Notice that for periods of up to two years, the market has tended to perform far better than usual following large declines.

Given the worry that is all around, I doubt that most investors will be able to muster sufficient courage to follow this advice. But for the few brave contrarians with the foresight to "buy when there is blood in the streets," here's a potential play: the Vanguard Real Estate Investment Trust Index VNQ, -0.71% .

That's right. Think about pouring some money straight into the sector that sparked the whole mess. Following the dictates of our history-based trading algorithm, Index Rx recently purchased this fund with two of our model portfolios.

In the end, it's a question of whom you're going to trust -- the media, your own emotions or the guidance of history? I know which I'm putting my money on.

Jesse Czelusta co-edits, along with his father, Lawrence Czelusta, the Index Rx investment letter. Jesse has a Ph. D. in economics from Stanford University. (See IndexRx.com.)

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