Bear Markets: Look Forward, Not Back When Investing

(The following article was originally published on The DIV-Net website on November 2, 2008.)

There is no argument that this is a bear market. During times like this, investors do have a tendency to shape their investment expectations based on historical events. Given the magnitude of the market's decline, it may seem comfortable to remain on the investment sidelines. Historically though, large market advances have occurred in the periods following bear markets.

As the below table outlines, the magnitude of this bear market puts the decline as one of the five worst--declining 43%. However, returns one year following the market trough have averaged 46% over the last 13 bear markets.

(click table for larger image)

• Every bear market is different, and the beginning of a new bull market is only known with the benefit of hindsight.
• However, bear markets have inevitably given way to market rebounds.

Source:

• Bear Necessities: Down Markets Often Breed Opportunity ($) Market Analysis, Research & Education, October 21, 2008, A unit of Fidelity Management & Research Company.

Comments

[Roger Knights:]

"However, bear markets have inevitably given way to market rebounds."

Except in Japan.

2008 Nov 09 02:21 PM

[herbert hoover:]

You tell us to "look forward, not back" and then begin the article with "an historical chart of past bear markets." Do you guys even believe the hookum you are slinging?

2008 Nov 09 08:40 PM

[{5U}:]

I look forward and I see the highest levered trillions of ugly high yield and 1st 2nd and 3rd lien leveraged loans that has not even began to default.

Some of this paper will have problems finding a home and rising corporate defaults translates to higher unemployment.

Stop being like every other pundit out there and calling the bottom every bear market rally.

2008 Nov 10 08:38 AM

[OldLimey:]

I look back and see a market that in October 07 apparently had no idea what lay ahead of it and therefore doesn´t rate any respect at all as a discounting mechanism. I look forward and see no compelling reason to believe all the salesmen now trying to part me from my money with calls of "the bottom´s in" .

2008 Nov 10 03:23 PM