Bear Markets...Just so you know

[mark500]

The last ten bear markets: duration and percent loss


August 1956-October 1957
14.7 months
-21.6%
December 1961-June 1962
6.4 months
-28.0%
February 1966-October 1966
7.9 months
-22.2%
November 1968-May 1970
17.9 months
-36.1%
January 1973-October 1974
20.7 months
-48.2%
September 1976-March 1978
17.5 months
-19.4%
January 1981-August 1982
19.2 months
-25.8%
August 1987-December 1987
3.3 months
-33.5%
July 1990-October 1990
2.9 months
-19.9%
March 2000-October 2002
30.5 months
-49.1%
Source: Standard & Poor’s Corporation.


Most of us were not investors through the Papa Bear market of 1973-1974. It took 7 1/2 years to get your money back from that one.

Lots of investors are used to quick sharp declines and recovery over a few months.

This to shall pass.

 

[al_bundy]

your last one is the SP500. Nasdaq took an 80% dive in that one and still hasn't recovered. i'm pretty sure it's replicating Dow 1968 - 1982 and Dow 1929 - 1950

 

[Retire Soon]

Marc500, thanks for taking the time to give us that information. It may turn out to be very relevant in today's market.

 

[W2R]

Most of us were not investors through the Papa Bear market of 1973-1974. It took 7 1/2 years to get your money back from that one.

Your post is fascinating!

If I understand this right, then the Dow and/or S&P 500 went down from Jan 1973 through October 1974 but then did not regain its Jan 1973 level until sometime in 1980?

I am not disputing anything but just want to clearly understand the post, and to more fully comprehend what is meant by "getting your money back".

 

[LOL!]

I wonder how these stats were determined. If I look at a chart of Vanguard total stock market from July 1998 to end of August 1998, I see a 20% drop in that 2 months, but it does not appear in the list.

 

[Puppy Belly]

NASDAQ dropped nearly 4000 pts from peak to bottoming in late 2002. It has recovered at a rate of only 300 pts per years over the last 5 years.

At that rate and from a chartist standpoint a double top/double bottom average means another 8-10 years before it regains it's 2000 value.

It really puts it in perspective if you were buying MSFT at $64 per share in 2000 ($72 PV) and realize that it still has only recovered to less than 50% of it's value, closing Friday at $33.

 

[mark500]

This is an interesting quote from Jim Jubak , Senior Editor ofWorth Magazine:

I think investors who have been in this market for any length of time think that 1987 is a typical bear market and it's really not. It went down in a very few days. People basically had no chance to get out. So they really didn't have a chance to do the wrong thing. I think people are behaving as if that's what they how to really worry about so that basically you have a kind of history that reinforces the buy-and-hold mentality that worked in 1987. If what we're talking about, however, is a bear market like '73-74 where you had this grinding decline over months, with the market constantly looking like it was going to rally, the bear trap, as it's called, so that people had a chance to go, "Well, gee, it's down 20 percent, but it's come up in the last few days. I'll put more money into it," it went up just enough for them to get more money sucked in and then went down again. That kind of market absolutely no one is prepared for. There really isn't anybody on the individual investor level who's been through that experience. It's too long ago.

Also keep in mind these S&P 500 returns:

1975: +31 %
1976: +19 %
1980: +26%

This site lets you calculate the SP500 returns over any years from 1950 until 2007.

CAGR of the Stock Market: Annualized Returns of the S&P 500

I don't remember anybody predicting the market right more than once, and they predict a lot. Peter Lynch

 

[poboy]

Made my first stock purchase in summer of 73, paid 12 3/4. Next day it was 13 and I thought I was a genius. Six months later it was at 10..Hung in there and still own it today.

 

[Orchidflower]

Now the question is: How long does everyone anticipate this Bear market to last?

 

[haha]

This is an interesting quote from Jim Jubak , Senior Editor ofWorth Magazine:

I think investors who have been in this market for any length of time think that 1987 is a typical bear market and it's really not. It went down in a very few days. People basically had no chance to get out. So they really didn't have a chance to do the wrong thing. I think people are behaving as if that's what they how to really worry about so that basically you have a kind of history that reinforces the buy-and-hold mentality that worked in 1987. If what we're talking about, however, is a bear market like '73-74 where you had this grinding decline over months, with the market constantly looking like it was going to rally, the bear trap, as it's called, so that people had a chance to go, "Well, gee, it's down 20 percent, but it's come up in the last few days. I'll put more money into it," it went up just enough for them to get more money sucked in and then went down again. That kind of market absolutely no one is prepared for. There really isn't anybody on the individual investor level who's been through that experience. It's too long ago.

Mark, do you have a link so we could read the entire article?

Ha

 

[W2R]

Now the question is: How long does everyone anticipate this Bear market to last?

My crystal ball says "between 2 months and 5 years longer, probably!!"

Seriously, I just don't know but it looks pretty ominous to me. Stagflation is no fun at all, if that's what we're in for. A lot could depend on how the Fed (Federal Reserve) and the Feds (federal government) respond to all this - - which we don't know yet - - and what effect that might have - - which we also don't know yet.

On the other hand, Donald Luskin has always seemed fairly sensible to me in comparison with some columnists and in this article, Panic Is Driving Today's Stock Market (Ahead of the Curve) | SmartMoney.com he seems more optimistic than some.

 

[Retire Soon]

Now the question is: How long does everyone anticipate this Bear market to last?

A bear market in large stocks has yet to begin as the market has not dropped from it's most recent high by 20% or more. However, we are currently in a bear market in small stocks.

 

[W2R]

A bear market in large stocks has yet to begin as the market has not dropped from it's most recent high by 20% or more. However, we are currently in a bear market in small stocks.

Good point. There are formal definitions of such terms. Here's a column about what defines a bear market, when they occurred in the past, when bull markets occurred, and various strategies for surviving a bear market.

The Next Bear Market

 

[Orchidflower]

To control my panic, I had to call my son the political science major to tell me AGAIN how strong the US economy really is....whew...
I love these articles, by the way...thanks for posting them!

 

[al_bundy]

Your post is fascinating!

If I understand this right, then the Dow and/or S&P 500 went down from Jan 1973 through October 1974 but then did not regain its Jan 1973 level until sometime in 1980?

I am not disputing anything but just want to clearly understand the post, and to more fully comprehend what is meant by "getting your money back".

the Dow bear market of that time was the Dow hitting a high in 1968 and not hitting that same level again until 1982. The SP500 hit a high late 1968 to early 1969, dropped like a rock, surpassed it in 1973, dropped like a rock again and didn't hit the same level until 1982 as well.

might be deja vu again

go back to the late 1800's and you will see that the Dow has always had bull/bear cycles with each one being 20 years on average. we are probably in a bear cycle now.

 

[al_bundy]

This is an interesting quote from Jim Jubak , Senior Editor ofWorth Magazine:

I think investors who have been in this market for any length of time think that 1987 is a typical bear market and it's really not. It went down in a very few days. People basically had no chance to get out. So they really didn't have a chance to do the wrong thing. I think people are behaving as if that's what they how to really worry about so that basically you have a kind of history that reinforces the buy-and-hold mentality that worked in 1987. If what we're talking about, however, is a bear market like '73-74 where you had this grinding decline over months, with the market constantly looking like it was going to rally, the bear trap, as it's called, so that people had a chance to go, "Well, gee, it's down 20 percent, but it's come up in the last few days. I'll put more money into it," it went up just enough for them to get more money sucked in and then went down again. That kind of market absolutely no one is prepared for. There really isn't anybody on the individual investor level who's been through that experience. It's too long ago.

Also keep in mind these S&P 500 returns:

1975: +31 %
1976: +19 %
1980: +26%

This site lets you calculate the SP500 returns over any years from 1950 until 2007.

CAGR of the Stock Market: Annualized Returns of the S&P 500

I don't remember anybody predicting the market right more than once, and they predict a lot. Peter Lynch

sounds almost like 2000 - 2003 to me

 

[Delawaredave5]

Wow - when you look at the data, 2000 to 2002 was "uglier and longer" than I remembered going through it.

Hopefully diversification "does it's thing" and dampens the "total portfolio hit" for us. There's a reason we hold dividend payers, bonds, international, etc.

In 00-02 I was light on tech and fairly heavy on international -that obviously helped.

What makes me nervous now is if we get the "double whammy" of the US tanking and the international markets correcting.

I once thought that as information and tools get better over time for managing the economy, that bear markets would be milder and shorter.

But 2000-2002 sure threw that theory out the window....

 

[innova]

Again, I don't get it.

Are you upset when markets are roaring because you DCA'd instead of betting it all on the previous bottom?

Statements like:

the Dow bear market of that time was the Dow hitting a high in 1968 and not hitting that same level again until 1982. The SP500 hit a high late 1968 to early 1969, dropped like a rock, surpassed it in 1973, dropped like a rock again and didn't hit the same level until 1982 as well.

Make no sense to me. How many non-retired investors (heh) invested in such a manner than their last investment was at the peak and they didn't 'regain' until years later? NONE.

When you are in the accumulation phase, these types of statements are irrelevant. You can't look at published yearly returns - they bear no resemblance at all to what you earned - for that you'd have to calculate your personal IRR (internal rate of return).

Now for you retired folks living off investments, different story entirely. Thats why you set your allocation more to bonds, obviously

 

[dessert]

The last ten bear markets: duration and percent loss

March 2000-October 2002
30.5 months
-49.1%
Source: Standard & Poor’s Corporation.

So if I interpret this correctly, the S&P lost half of its value. I will assume that most diversified portfolios probably lost half of their values as well if you ignored the market and stayed put?
So here we are down ~10% or so, no wonder there is talk about market timing.
I know that everyone says to ignore this as "noise", but won't someone please come in here and put all of this in perspective for us?

 

[innova]

Well.. if you're retired and 60/40 or 50/50 you didn't lose half your value. Not to mention, a slice 'n dice portfolio containing small caps, reits, and a healthy dose of international fared quite well over that span.

One 'lazy' portfolio I based my AA on looked like the following (yearly returns):
2000 10.67%
2001 1.12%
2002 -0.65%
2003 23.88%
2004 14.72%
2005 8.16%
2006 13.83%

This is a 60/40 allocation, tilted to small and value, with some reits and substantial international allocation (40% of equities). The S/P is a poor bogey for this portfolio.

*note: I'm not 60/40, I'm 80/20 and I didn't have this allocation over this time span. Still, its illustrative.

 

[danm]

I know that everyone says to ignore this as "noise", but won't someone please come in here and put all of this in perspective for us?

I tried the past year or two but was called a tin hat foil wearer, so didn't stick around much. Stocks were apparently on a tear and nobody would hear any different, but I believed the stock runup was illusory and due to a credit bubble. In the meantime contrarian investing has done well.

Well it's all little late now, best to stick with your plans.

 

[dessert]

Well.. if you're retired and 60/40 or 50/50 you didn't lose half your value. Not to mention, a slice 'n dice portfolio containing small caps, reits, and a healthy dose of international fared quite well over that span.

One 'lazy' portfolio I based my AA on looked like the following (yearly returns):
2000 10.67%
2001 1.12%
2002 -0.65%
2003 23.88%
2004 14.72%
2005 8.16%
2006 13.83%

This is a 60/40 allocation, tilted to small and value, with some reits and substantial international allocation (40% of equities). The S/P is a poor bogey for this portfolio.

*note: I'm not 60/40, I'm 80/20 and I didn't have this allocation over this time span. Still, its illustrative.

I realize what you have shown and I can't say that I was even paying much attention to mine during 2001-2002 because I was not thinking about retirement at that time. It's different now and just this past 4 weeks or so my 401K has gone down by quite a bit. In fact one more week like the one we just had and my total will be what it was in January of 2007 meaning that all of last years totals have vanished. Last year I was up 12.1%. Do I just need to "lighten up" and realize that we have 11 1/2 months to rebound in 2008?

I once posted "what me worry"?.....and now I am. I guess I have been watching too much TV because they "Love those Bears" and get their ratings up with gloom and doom. You would swear that we will all be in soup lines next week according to them. And we aren't even in a recession. Mob behavior always bothers me and that's what I see. Ok, I'll lighten up now.

 

[REWahoo]

I know that everyone says to ignore this as "noise", but won't someone please come in here and put all of this in perspective for us?

I tried the past year or two but was called a tin hat foil wearer, so didn't stick around much.

Danm, in the interest of accuracy and full disclosure, I went back to find evidence that you'd "called the market" and been ignored. Looks like you were correct in predicting a market downturn...just two years early. From January of 2006:

After the ramp up into Jan I moved everything to bonds. With those market expectations I believed that, after last year, earnings this year wouldn't be able to keep pace with the poor consumer response during Christmas. Also Iran (and the upcoming bourse) would put pressure on oil, which would do same to stocks. Unexpectedly Bin Ladin threats and the Niger kidnappings just added to the stew. This all occured earlier than I thought, but so far so good.

Monday? who knows and who cares? Going into March when the bourse opens I exepect Iran to stay in the news and to supress stocks. Closer in we should see better, but around that time I expect the reality of the housing market will become better known. A combination of the Fed and sentiment will invert the Yield curve out to 30 years, likely, and regardless we'll move into recession probably by summer.

For 2006 I don't see any positives for stock indicies. Anybody?

I believe the S&P 500 increased 13.8% in 2006...and 6.1% in 2007.

Timing is everything...or nothing.

 

[unclemick]

Well - speaking handgrenade wise - I had roughly 200k in financial assets when I was canned in 93 time passed and one quarter during the last bear my portfolio was down 250k or more than I ER'd with.

There is more to the story - but some rookies might have considered that a reason to get excited.

I've seen a few chewy markets since 1966 and successfully made about every investment mistake in the book over forty years.

Having paid for my education - I try to put it to use.

heh heh heh - Target Retirement for real money and a few dividend stocks for lagniappe.

 

[Jbird]

Most of us were not investors through the Papa Bear market of 1973-1974. It took 7 1/2 years to get your money back from that one.

Can someone explain to me what we mean by "it took 7 1/2 years to get your money back.."? Does that just account for previous earnings?