Simple Certainty | Bear Markets: Fearsome Name, but Fearsome Bite?

There’s no doubt that bear markets can be a wild ride, but close attention to the facts reveal that their growl is far worse than their bite.

Welcome to the second episode of Simple Certainty in our series on market myths. If you missed the first episode, which focused on market corrections, be sure to check it out; lots of telling facts that go a long way to dispelling the superstition that hovers over the stock market.

This episode, however, is concerned with bear markets, what many fear a correction may turn into. But, is that fear justified?

How often do bear markets occur?

Once again, we’re going to do that Halcyon thing of using facts to dispel myth. Between 1900 and 2015, there were 34 bear markets, about one every three years. In the last 70 years, there have been 14, a rate of one every five years.

In other words, they occur more often than most people think.

Bear markets aren’t for the faint hearted…

We’re not going to sugar coat it. They can be rough. On average, the S&P 500 has dropped by 33% during a bear market. In more than a third of them, it’s been a plunge of more than 40%.

If you’re one prone to anxiety, these will be tough times. All around you, people are getting consumed by pessimism, and there’s a pervasive belief that markets will never rise again.

Even many financial advisers will fall victim to the panic and cease all communication. But, if you’re with us, we’ll be broadcasting our message loud and clear: ‘stay the course’.

…but it’s important you remain steadfast

Here’s why.

Remember 2008 when banks were collapsing and the stock market was in free fall? It was bleak, to say the least, and not many could see a light at the end of the tunnel.

In March 2009, the markets finally hit rock bottom. And do you remember what happened next? The S&P 500 surged by 69.5% over the next 12 months. It was an incredible recovery, which began one of the greatest bull markets in history!

But wasn’t this just a freak occurrence? I hear some pessimists ask.

Well, let’s take a look at another fact. In the past 75 years, markets have averaged a return of 39% in the first 12 months following a bear market. In fact, in the US, every single bear market has been followed by a bull market.

What the facts tell us

This tells us three things.

  1. The doom and gloom surrounding bear markets simply isn’t warranted.
  2. The worst thing you can do is sell and then watch as the market surges.
  3. Warren Buffet was on to something when he said he likes to be greedy when others are fearful. In other words, a bear market is an opportunity to buy when the price is low.

The reality is this: we operate in developed markets that have a general upward bias because our economy grows over the long term. Along the way, yes, there will be dips, and they will create anxiety.

But by using the past as a guide and focusing on the facts, we give ourselves the best chance of not only surviving the troughs, but coming out of them stronger than before.

What’s the biggest danger of the stock market? Stay tuned…

That’s it for our episode on Bear Markets. Next time on Simple Certainty, we take a closer look at why being out of the market is the greatest danger. ‘Til then, stay well.      

Make sure to call us on (03) 9835 3800 to book your personal appointment.


Please note this is general information only and you should always seek your own personal

Have a Question? Ask the team

  • This field is for validation purposes and should be left unchanged.