Those who've never experienced a bear market were most likely born before 1990. According to Centerpoint securities (from which the graphic showing bull and bear markets was obtained):
Bear markets occur with indexes fall 20% or more off highs for at least 60-days. This causes investor sentiment to turn negative causing stock prices to continue cascading lower and lower.
Adding:
Bear markets tend to occur around every 56 months on average. The average bear market tends to last less than two years. Some bear markets can last just a few months to a few quarters depending on the underlying cause. The 2007 financial meltdown lasted nearly two-years as the U.S. Federal Reserve (Fed) had to implement the Troubled Asset Relief Program (TARP) to finally get the markets to calm down and recover.
Thus, the last 'Bear' occurred in the wake of the 2007-08 financial meltdown which itself was triggered by the spread of overrated mortgage securities and credit default swaps, e.g.
We fared well in the last Bear market following the 2008 credit meltdown, for two reasons:
1) We had already paid off our mortgage (which was from Countrywide, one of the instigators of bad mortgage debt - given the massive volume they had of subprime mortgages) and:
2) We had pulled out of the stock market over a decade earlier. We opted instead to put our savings into immediate fixed annuities - which provided a steady monthly income stream without variability.
For all those not prepared to embrace such protections it pays to know a bit about the history of Bear markets. For starters, there have been no fewer than 26 bear markets in the past century. The average time to reach the previous high (when a bear market was accompanied by a recession) was 81 months. Without a recession, the recovery time was a mere 21 days. Over the past sixteen years (since the credit crisis of 2008) there has been less than 8 months elapsed before the next high was reached.
After the collapse of the Long Term Management hedge fund in the summer of 1998, the model for "buying on the dip" was set. Timely, because in the LTM case, investors lucked out when the Fed stepped in sending stocks soaring to new highs by November.
Meanwhile, the tech heavy NASDAQ composite would go on to rally by 255 percent over 17 months, which helped set the stage for the dot com bubble which burst in 2002. In 1999 and 2000 combined there were 631 initial tech public offerings, with the average P/E (price to earnings) ratio near 50. Compare that to 38 for AI offerings now.
The ensuing bursting of the dot com bubble - with many in 401ks over invested prior to planned retirement - saw too many ending up with a withered nest egg and little more than canned cat food to eat. The reason? Likely because few in the market at that time (late 1990s) had personally experienced a really long downturn.
Flash forward 25 years to today and much is the same. In fact hardly anyone younger than 40 even had a 401 k during the credit default wipeout of 2007-08. The ensuing bear market was the worst in terms of total losses, no question. The S&P 500 dropped 56.8 % from top to bottom. That awful stretch began on Oct. 9, 2007 and lasted 17 months before ending on March 9, 2009.
What made it worse was coming 5 years after the dot com bubble burst. That decline lasted 30.5 months from March 24, 2000 to Oct. 9, 2002. The S&P 500 fell 49.4% from top to bottom.
To be sure, between the two crashes there was a bull market in which the S&P 500 index rose 101.5%. A tremendous increase, right? Yep, except for a basic math problem. As I've noted in previous posts on finance basics when a stock declines 50% it must get back 100% to get to the break even point. To put it in basic math terms, if you start with $100 in a Vegas casino and lose half of it, in slots or blackjack, you need to double your remaining 50 bucks to return to the 100 bucks you started with. I.e. to break even.
As one wit once said: "Bear markets are educational for young investors. But the tuition is a doozy."
See Also:
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And:
Immediate Annuities Remain The Best Bet to Secure A Decent Retirement
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