BEAR MARKET COLLAPSES

SUMMARY:

Did you know that outside of Bear Markets that the stock market returns about 15% per year? And did you also know that the stock market provides excellent returns about 86% of the time?

Bear market declines only represent about 14% of trading cycles on average. But bear market crashes happen about once every seven years. For this big problem (bear market crashes) that only happens occasionally, the investment world has come up with a small number of solutions that only hurt your long-term investment results.

STOCK MARKET HIGHS AND LOWS

The stock market is a great place to invest your money in the long term. The stock market has produced more wealth, and more millionaires than any other asset class in history. In the long term there is very little risk when investing in the broad stock market. Individual stocks can and do go to zero, but the broad stock market always goes up in the long term. The only danger associated with investing in the broad stock market are those painful and annoying Bear market crashes. They happen about every 6 to 7 years on average and these bear market declines can generate losses of 40% or 50% of your investments. The table below shows the stats from the worst bear markets from the last 50 years. The market always bounces back from these declines, but it can take up to seven years to get back to even.

Bear markets have two components - the crash and the recovery. The declines or crashes last about 11 months on average. Some crash periods have been very short like the Covid Crash of 2020 and some take a long time like the financial collapse of 2008. The recovery leg of a Bear market lasts two or three times as long as the crash. The rebound or recovery phase can be very powerful and can produce some big gains. All our worries about stock market investing are associated with the Bear market crashes.

But if we separate out the periods when stocks are crashing in Bear markets from all other time periods, the Bear market crash only represents about 14% of stock market trading cycles. The other 86% of the time, the stock market (as measured by the S&P 500) is climbing by about 15% per year on average. On an annualized basis, stocks lose about 39% of their value in the Bear market crash cycles. So, 86% of the time, investments are growing very rapidly (15%) and only 14% of the time are stocks losing money.

THE OTHER PROBLEM WITH BEAR MARKETS: TIME

It is bad enough that bear market declines are so severe, but the other issue with bear markets is time. Bear markets are not short-term events, typically. If we look back 50 years, the average duration of a bear market is about 4.5 years. This counts the time between the previous peak and the recovery back to that peak. So, your money basically earns nothing over 4.5 years (not including dividends). On the high end, the 1970’s bear market lasted 7.5 years and the 2000 crash lasted 7.2 years. The 2020 Covid crash was quick, lasting only six months. The crash itself takes an average of 15 months from peak to bottom. The longest declines in the last 50 years happened in the 1970’s (2.5 years) and the early 2000’s (1.8 years). The shortest once again was the Covid crash of 2020 which went from peak to bottom in only about one month. The current bear market (as of this posting) is only about 9 months at this point, but it is following the pattern of the 1970’s bear market, unfortunately. So, in addition to dealing with the pain and suffering of investment losses of 40%, equity markets can go nowhere for as long as seven or eight years or more.

Date of Prev. Peak	Date of Bottom	Time to Bottom (months)	End of Bear Market	Bear Market Duration (yrs.)
1/5/73	10/3/74	21	7/14/80	7.5
8/25/87	12/4/87	3	7/26/89	1.9
3/24/00	10/9/02	31	5/18/07	7.2
7/13/07	3/9/09	20	3/6/13	5.7
2/19/20	3/23/20	1	8/18/20	0.5
AVERAGE		15		4.5

THE WRONG SOLUTIONS TO THE PROBLEM

Because the crashes are so severe (-39%), we are told to put 40% of our money in bonds. We are told to diversify our investments into international equity markets and commodities. The theory is that these other asset classes will not fall as much during bear market crashes and can, therefore, cushion the blow. The only problem is that this is not always true and the S&P 500 has always beaten the other asset classes over the long term. So, the investment community has sold you on the benefits of asset allocation and it doesn’t really work.

THERE IS A BETTER WAY: BEYOND BUY & HOLD

There is now a much better way to invest where you can achieve the high long-term returns of the stock market and lower your risk. Imagine fully capturing those 15% annual gains and not having to worry about Bear market crashes. The Beyond Buy & Bold system can produce investment returns that are double what you are getting from the traditional asset allocations. And, even better, you get the peace of mind of knowing your savings are protected against those inevitable stock market collapses. Learn more by checking out our Market Signals investing service.

Happy Investing,

Phil

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Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.