Published On: July 12, 2022
Written by: Ben Atwater and Matt Malick
We had a nice reprieve over the last week, but the bear market persists.
We know bear markets are inevitable. They always come. On average, since 1928, they occur every 3.6 years. We built our investment process knowing this.
Since founding Atwater Malick in late 2008, not even 14 years ago, this is our third bear market.
Here are some historical bear market facts we can share with you:
During an average bear market, stocks lose 36%. In comparison, during a bull market, stocks gain 114%.
Bear markets tend to be short-lived. The average length of a bear market is 289 days, or about 9.6 months. That is significantly shorter than the average length of a bull market, which is 991 days. The longest bull market ever is the one that ran from December 1987 until the dot-com crash in March 2000.
In the distribution of bear markets throughout history, the post-World War II period has seen less frequent bear markets. Since 1945, there has been one about every 5.4 years.
Whereas pre-WWII, between 1928 and 1945 there were 12 bear markets, or one about every 1.4 years.
Even during bear markets, stocks have good days. Half of the S&P 500 Index’s strongest days over the last 20 years have occurred during a bear market.
More importantly, 34% of the market’s best days took place in the first two months of a bull market, long before anyone actually knew it was a new bull market.
So 84% of the market’s best days have happened during or in the dark shadow of a bear market. And missing the market’s best days is devastating to lifetime returns. So always remember, no one can successfully time the stock market.
Making it even more difficult to time, a bear market is not completely correlated with a recession. Not counting this bear market – because the jury is still out on if we are experiencing a recession – there have been 26 bear markets since 1929, but only 15 recessions during that time.
Bear markets are exhausting. However, enduring them is vital because markets are positive most of the time. Over the last 92 years, bear markets have taken hold during only 21 of those years.
As you can see, bear markets are common and hard to navigate without losing your way. Therefore, you need a disciplined investment strategy before, during and after a bear market.
A solid investment strategy avoids the extremes of greed and of fear. For example, we avoided the speculative junk of the bull market. We never bought into the world of innovation stocks, crypto, meme stocks, etc. and we stuck to our discipline. We will continue to do so.
This cycle will pass. Markets are not predictable in the short-term, so we cannot say when the pain will end, but we have you well insulated with our laddered bonds and high-quality equities.
In times like these, we must avoid “self-inflicted” damage. In other words, we cannot grow fearful and sell when stocks are down. We need to hold for the duration and even invest more when the opportunity presents itself.