Ever since the financial crisis investors have been bombarded with books, blog posts, articles and advice about how to survive the next bear market/Lehman Brothers/black swan/recession/subprime/1987/big short moment in the markets.

And don’t get me wrong, preparing yourself mentally for market downturns can be a helpful exercise. These things are inevitable so planning for a wide range of outcomes that includes the potential for large losses in risk assets is a decent way to ensure that you don’t panic when markets do fall.

But there’s another risk in the markets that most investors don’t spend too much time worrying about — a melt-up in prices.

It would seem to me that all of the ingredients are in place for a potential U.S. equity bubble. Interest rates are extremely low, central banks around the globe are almost accommodative across the board, there is a substantial need for returns from pensions and retirees and a general lack of alternatives elsewhere to invest. That doesn’t mean it has to happen, but the pieces are in place for upside volatility, something very few investors believe could occur these days.

In fact, if you look back historically at how stock markets have generally performed, they are much more likely to rise substantially than fall substantially in a given year. My colleague Michael Batnick ran those numbers this week and found that since 1926, “U.S. stocks were nearly six times more likely to be up twenty percent one year later than they were to be down twenty percent.” Here’s his chart:

David Fuller's view

The chart in this article is worth keeping for perspective because it confirms what most investors already know but can easily forget in nervous, volatile markets.  Given reasonable governance, stocks rise more than they fall over time, due primarily to GDP growth and inflation. 

To benefit from market volatility, the simplest and most important guideline for any young investor is: Buy-Low-Sell-High.