Think This is a Bear Market? This is Nothing!

Yes the action stinks. Its been dramatic in how short of a time frame it has happened (I guess after months of denial, once acceptance begins, it happens fast), but in the big scope of things this is nothing.... Bespoke blog again (notice I love their statistics) with the typical NASDAQ bear market. I'm just glad in 73-74 I was too busy being born to be investing... but 630 days... of this? Ugh.

Meanwhile for those of you who missed the early part of this decade you can see all the carnage those of us "lucky enough" to be around enjoyed aka tuition aka death spiral. You can see how dramatic the drops were in such a short period of time in 00 (when we were still in denial stage - we had a big bounce in summer 00, before a 2nd free fall that year), and then in 01 when we broke down completely, and then the 278 days of 2002 that just killed whomever was left who was a 'growth investor'. Let me frame it for you:

1. After the biggest bubble in decades we had 37% drop in 74 days in early spring 00.
2. The market then put in a mini spike off that low, drawing back in the bulls (I'm raising my hand very high - guilty as charged) Correction over! Not so much. Over the next 169 days we lost 46%
3. Then we had the January effect in 2001 (yee haw) Correction over! Not so much. Over the next 70 days we lost 43%.
4. Then we had another late spring rally in 2001 (is this the end?) Correction over? No. Not over. We lost 38% over 122 days
5. Then the market sucked us in with a 3 month + Santa Claus rally. Finally the bottom was reached... party time. Oops.
6. Over the first 10 months of 2002 we lost 46%

Again, this was the NASDAQ - the S&P 500 was NASDAQ lite - same direction, but not the same magnitude. But what you can see in true bear markets (if we are entering one) - is you get sucked in a lot, you are given hope, you feel happy, and then the sledge hammer is applied ... over... and over... and over. To a point where you surpress such memories and only talk about it in hushed tones to those who were there with you. :) But I think a whole generation of investors was stuck with JDS Uniphase (JDSU) (down 99%) in their account...

So if this is another era we are entering, expect nice counter rallies of some serious magnitude within the greater context of a lot of dips. And on each counter rally we will wonder "was that the bottom?" And we won't know... until we look back 6 months later. By 2003, no one was expecting the market to ever go up again. But it did... and then its been straight up for 5 years. Easy street! Until now. And yes there were stocks that went up, during that time believe it or not (probably not on NASDAQ though). But it is as I've stated like a trout swimming upstream; some tough work to make any progress.

I do want to say... keep in mind, the action early this decade was in reflex to a much much more expensive market - the average NASDAQ stock had PE ratio >50 in early '00. We were nowhere near that valuation in this era. But certainly we could only be halfway through a correction? Or for all we know done. (I doubt that). I do also still think the small cap stocks will (when all is said and done), be the worse off, (this era's NASDAQ) - remember, if you are tied just to the US consumer without any international exposure... your situation is a lot more precarious.

Comments

[User 120461]

Mark, the Fed made a clear signal to "get out of your savings account and put the money to work". This bear will not equal the previous one because the previous one destroyed everything and this one previous bull was not that tall.

2008 Jan 22 03:47 PM

[talktowen]

Mark, NASDAQ stocks has extremely high PE (many in their 50s). Most stocks are not even earning any money. However, the S&P500 and DJ are composed of company with solid earnings and average PE of 15. Consumers may slow their purchases due to tight budgets. Companies in S&P500 and DJ still not crash like the NASDAQ. Stocks may drop but not to the same degree. Relax and be patience

2008 Jan 22 06:53 PM