This Bear Market Will End, Eventually

Yes, we all know that past performance is not an indication of future returns. However, the only information that we have to make decisions on investing is from the past. Therefore, this information is better than no information at all.

Some Important Stats on Stocks

Here are some current relevant statistics for those who want to know if they should be investing in stocks right now:

• 30, 19 - Since 1950, the average U.S. bear market has lasted about 13 months and on average, has declined 28%. At the end of February, we were 18 months into the current downturn and U.S. stocks were off by more than 50% from their October 2007 peaks. On average, when bear markets end the return on U.S. stocks 12 months later has been about 30% and investment losses through previous bear markets were typically restored an average of 19 months thereafter (although it’s important to keep in mind that the breadth of the current decline has been worse than the average).
• 80, 16 -When the S&P 500 is trading below fair value and inflation is at or below its long term historical average of 4.2% (conditions that exist today), the return on stocks is positive more than 80% of the time. The average one year return during these periods is about 16% versus an average loss of 7% during instances where returns were negative (less than 20% of the time).

• 30 - On North American exchanges, more than 30% of stocks are currently trading below book value.

What These Statistics Mean

No, these statistics are not the be all and end all of investing. Nor are they to be used as a road map for your own investing decisions. However, they are useful in illustrating the fact that bear markets end just as our last bull market ended.

The climb will not be as drastic or sharp as the fall, but there will eventually be another bull market and stocks are surely closer to a bottom now than they are to a top.

Comments

[Prudent Man...:]

You invest for earning power, not book value. Book value of a lot of homes are for sale much under water, does that mean they will appreciate?

Earning power determines value and no one has a clue what the earning power will be in a deleveraging market or how long and at what cost the deleveraging will extract from the excess of the past two decades.

Thirty events are necessary before on can even begin to use statistical analysis which, at best, is a WAG. In other words, "where is the beef" not the baseless opinions? If an analyst doesn't have facts upon which to perform an analysis he cannot offer a valid opinion so let's stop the guessing based upon history unless you called the start of a bear market in early 2007 and stayed on the sidelines until now.

Mar 17 04:31 PM

[Larry House:]

Tyler, if you are going to base current advice/investing on past bear markets, you are going to be one sorry young man. This bear market isn't in the history books. In about forty years you will have some real knowledge to add to your book learning. Of course this bear market will end. That is not useful. Each investor has to decide how he/she is going to handle what we are in. Have you ever heard of risk profile? Time Horizon? Asset allocation? Are you seriously saying we are in low inflation for many years to come? You are trying to make a very simple thing out of a most complex time. That is what book learning and inexperience lead to.

Mar 17 05:32 PM

[nyoneway:]

"This Bear Market Will End, Eventually", thank you Captain Obvious.

Mar 17 05:34 PM

[yellowhoard:]

I wouldn't start trying to catch this knife until we get to about S&P 400. At estimated earnings of $40 for the S&P500, that's a fairly optimistic 10x multiple. Most likely, we'll overshoot to 8x or even 6x earnings.

At that point I'll change my name to Equityhoard!

Mar 17 06:30 PM

[flashrob:]

how 'bout trying some "common sense" based on what YOU SEE CURRENTLY instead of "INTERPRETATIONS ON PAST WORTHLESS STATISTICS" ...ya know, the one's the analyst USED IN 2007 to "so-accurately" predict 2008...THE ONES THAT COST INVESTOR'S "HUNDREDS OF BILLIONS" IN LOSSES...

TRY THIS...I DIDN'T LOOK UP ANY "REAL STATISTICS" just picked thru the news, looked around AND APPLIED A GREAT DEAL OF "COMMON SENSE!"

the FAKE BEAR RALLY TODAY ...excuse today for a rally (continuing last weeks fake financial rally) was driven by:

"new housing starts" increase by 6%

that's because BUILDERS BUILD...and now it's MOSTLY CHEAP condos (in those numbers).

The reality is: their smart... they know a lot of people WILL BE DOWNSIZING...losing that big McMansion (with the 3car garage) AND WANT SOMETHING CHEAP..."TO RENT!" ...while their foreclosed McMansion adds to the UNSOLD GLUT OF EMPTY HOUSES...

does that sound good for REAL ESTATE... sounds to be like "further deteriorating ASSET vals" for local/regional banks AND THE FURTHER WRITE-DOWNS for the "Real Estate derivatives" of the "BIG FINANCIAL INVESTMENT BANKS."

...EVEN "HOME DEPOT" had a "big rise!"

I guess all those people RENTING those NEW CONDOS...will be SPENDING LOTS at Home Depot...ya know...redoing their new "rental kitchen" or "bathroom" ...or buying a "lawn tractor" ...Oh, wait a minute the APARTMENT/CONDO OWNER will be buying "one new tractor" NOT 100 TENANTS who formerly had McMansions and bought "100 tractors" from Home Depot.

This FAKE RALLY was inspired by the above... SEE HOW MUCH YOU AND THE "HERD" can be driven BY THE SAME PEOPLE who TOLD YOU "BOTTOM" and buy in "while stocks are cheap" ...they have been piping you DOWN for the last two years... and you still run for the "quick (bear FAKE) RALLY" because YOU ARE IN DENIAL!!!

the ECONOMY IS HEADED LOWER AND SO IS THE STOCK MKT... there have been no REAL fundamental improvements to DRIVE A "REAL RALLY."

I personally, don't like what's happening, BUT I AM A REALIST...and as soon as I saw the "new housing starts" number, I SMELLED A FAKE RALLY and profited, by the way...I'm a daytrader afterall, but I'm already OUT.

...these MISLEADING NUMBERS...pumped up by the analysts and spread thru the financials, even OIL went up...

CRAMER, TONIGNT, even called "today's rally" a "cheap linoleum floor" under the mkt, after doing MUCH THE SAME ANALYSIS AS MYSELF... and he's a bull (I saw Stewart's roasting of him, and felt he was doing a little contrition... I did like the new CRAMER...I thought HE WAS DEAD RIGHT ON TONIGHT...and will now watch him to see if he sticks with REALITY!}

Serious, forecasters indicate we appear to be NEARER BOTTOM in the market. They also, warn that there is no reason for BUYING IN YET and "no good reasons" for a "sustainable real rally" driven by sound fundamental logic and numbers.

So, in reality...YES IT'S A FAKE RALLY!

I know some people lost a lot of money in many stocks/sectors on the way down over the past year.

But believing "waffling spin" by the Fed and the Administration, and "feel good" stuff like confidence numbers have slowed...

"consumer confidence" means crap these days, especially to those 600,000 or so people LOSING THEIR HIGH-PAYING JOBS...and the corresponding money THEY SPEND IN THE CONSUMER ECONOMY...

A Jeffries analyst on Bloomberg...was SOUNDING OFF UPBEAT
about the MANY STOCKS IN THE RETAIL SECTOR...

saying banks will loosen credit under Obama's stimulus plan, etc., etc., etc....

PROBLEM is the CONSUMER is maxed out on his credit cards,
(see Amex defaults increase yesterday)...

SO ALL THE INCREASING OF "EVEN CHEAPER CREDIT" is not going to help AN INCREASING NUMBER OF CONSUMERS WHO "DON'T QUALIFY FOR IT!'

if you read the above slowly AND THINK ABOUT IT...

you will realize that IT WAS JUST ANOTHER "FAKE RALLY!"

...based on denial, frustration, fantasy...ANYTHING BUT...

BASIC FUNDAMENTAL ANALYSIS...

flashrob

Mar 17 07:37 PM

[drbob66:]

Well, the bears are still growling, and sounding as obnoxious as ever...it must be time to buy stocks.

Sell your SDS and SKF, boys, before your gains disappear (if they haven't already).

Mar 17 07:49 PM

[flashrob:]

try this, especially if your "long" the financials...

messages.finance.yahoo...

read the post AND THE SINGLE REPLY

flashrob

Mar 17 08:40 PM

[logicalthought:]

"When the S&P 500 is trading below fair value..."

Yes! I love the pseudo-authoritativeness there!

Mar 17 08:42 PM

[Deepv:]

What I don't understand is why everyone takes *anyone* seriously who tries to justify S&P level by using some kind of multiple on trough earnings. It is unbelievably silly and not analytically robust.

Mar 17 09:58 PM

[KENMEISTER:]

What reason is there to compare this to the "average" bear market? It shoud be compared to the average depression. The bull market will return but it could be 5-10 years away.

Mar 18 01:14 AM

[AussieAviat...:]

The World Economy has Cancer. Bailouts are acting as morphine. This patients been steadily going down hill with the cancer spreading. Without going under the knife or in this case chain saw (cutting out poison assets) the longer term future is bleak to say the least. Its great that we sense he (or she) is up managing to have a walk, but if you really believe this patients off to the 2012 Olympics in this current state of health ? After doing well with this bouncing elephant Ive gotten out. But my canons are loaded waiting to see evidence that the post operation stitches are being sewn.

Mar 18 02:02 PM

[ain't no fo...:]

Actually, it already did end. Yesterday. When the Dow came fighting back from a big, potentially disappointing correction day Monday to recapture all its lost ground from Monday's highs.

That was the sweet beautiful sign of a bull being born.. the latest in a week long trend of higher highs, higher lows, snapback moves every time the bears tried to take it down intraday, always a bid sitting there under the market to keep it strong, all the great things that markets do in bull markets and NEVER do in bears.

Just reading the denial, self rationalization and nonsense of the permabears here reminds me of all the denial and nonsense I heard in the summer/Fall 2007 from the permabulls as the last sheep to the party beat their chests in false courage.

You guys are just TOO funny.

Mar 18 07:04 PM

[AussieAviat...:]

19th March 09 - Sitting here in Sydney watching U.S futures. I hope im wrong but it looks like the Cat can no longer defy gravity. We are very lucky here because we experience a very similar trading pattern to yours the following day. Cut and run but don't run too far.

Mar 19 07:25 AM

[AussieAviat...:]

Denial is $weet !


On Mar 18 07:04 PM wpdragon wrote:

> Actually, it already did end. Yesterday. When the Dow came fighting
> back from a big, potentially disappointing correction day Monday
> to recapture all its lost ground from Monday's highs.
>
> That was the sweet beautiful sign of a bull being born.. the latest
> in a week long trend of higher highs, higher lows, snapback moves
> every time the bears tried to take it down intraday, always a bid
> sitting there under the market to keep it strong, all the great things
> that markets do in bull markets and NEVER do in bears.
>
> Just reading the denial, self rationalization and nonsense of the
> permabears here reminds me of all the denial and nonsense I heard
> in the summer/Fall 2007 from the permabulls as the last sheep to
> the party beat their chests in false courage.
>
> You guys are just TOO funny.

Mar 20 02:35 PM

[AussieAviat...:]

Nasdaq on Wednesday = < 1340

Mar 20 02:38 PM