How Fast Can You Lose Money?

I have heard the saying that the bull climbs the stairs and the bear jumps out the window. I wanted to see if I could observe this phenomenon in actual market data. Of course, I have personally witnessed individual stocks jump out the window many times, sometimes for relatively minor infractions. To answer this for myself, I look S&P 500 index from 1981 to the present.

Observations

The period for 1981 through the year 2000 was a secular Bull market where it was good to be long in the market. There were a few notable bumps along the way, such as the 1987 crash, which now seems small in the big scheme of things. If you were long the market, it was hard to lose money during this period, and buying on dips proved to be profitable. The 2000 peak is quite symmetrical from about 1997 to the 2002, about three year up and three years down. This was not the case for the 2007 peak. The drop off from the 2007 peak was steep and only took a year and a half to get to the 2009 trough. Once the market peaks and starts its decline, it is no longer a good idea to be long or to buy on dips. During this period the Bear will hand you back your head on a platter.

This period from 2002 through 2009 is a period where the bull climbed the stairs; and if the bear did not jump out of the window, he certainly tumbled down the cliff.

Conclusion

We all feel like geniuses when we are long and the Bull climbs the stairs. When the Bull stops climbing and the Bear either jumps out the window or tumbles off a cliff, its not a good idea to be long. If you invest in individual stocks you get a chance to see the individual stock jump out the window every quarter. If you invest in the broad market or ETFs, you are spared a lot of this quarterly drama but are still subject to the ravages of the Bear.