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We have heard a few very smart people over the last couple of months say something like this has been the toughest market ever, or words to that effect. Well I have heard that said a few times anyway.

In all likelihood, it is not the toughest market for at least a couple of reasons.

The first is that the road to this downturn has been very textbook. If you have been reading this site for a while, I pretty much spelled out the manner in which this would happen because.... this is what textbook looks like: the yield curve, the problems that stemmed from the yield curve, the signs of excess, the length of the bull market, the slow rolling over that started in October and the parade of very plausible theories about why this time would be different.

It appears as though I might have been right about this, but if I do turn out to be right it is because I did not try to figure out why this time would be different. The very textbook nature of this makes it not that tough, in my opinion.

Another reason why I don't think this is the toughest market ever is that everyone participating in the market knows more than whenever the "last" tough market was. Don't you know more than you did a year ago or seven years ago? I'd like to think I've learned some in that time and you probably would like to think the same.

The last reason why I think this is not the toughest market ever, is that we are only down 14.9% from the peak last October. All things considered I would rather that 15% went in the other direction, and while 15% is more that down a little, it may not really be as bad as down a lot, well not yet anyway.

Anyone making comments along the lines of being the toughest ever, or worst ever, or whatever, is speaking hyperbolically and, if anything, is simply creating the potential for more emotion not less. A few months ago I interviewed the managers of the Nakoma Fund (NARFX) for a TSCM article. One of the guys said that a market like this is when a manager is more likely to add value, as opposed to a raging bull market so in a way he is saying that raging bulls are tougher.

I don't know if that sentiment can ring true for a lot of people but I would expect my biggest lag to come the next time we are up 30% in a year. In 1999 the SPX was up 19.6% (plus dividends) with megacaps and tech leading the way. A repeat of 1999 has lag written all over it for anyone who wants to maintain a diversified portfolio. That's not a bad thing per se, just how it works.

Source: Why This Is Not the Toughest Market