Bulls and Bears and Unintelligent People

Dear Jack,

I was listening to the radio on the way to work today, and callers were calling in to say what they will remember of the year 2009.  A lot of them made comments on the stock market (which I found slightly sad if that’s the only thing they remember), but again the conversation of the “Great Depression repeated” was brought up, and it irritated me.  People have such poor memories.  And before I go further, let me be clear: this is a terrible recession we’re in and a terrible bear market we’re hopefully bouncing from.  No doubt about it.  And people have been hurt, some hurt very badly.  People have lost jobs and have had incomes slashed.  But – this is not the Great Depression.  Nor is it the end of the stock market’s premium returns.  Let’s gain some perspective on this issue.  First a look at the stock market.

Since 1946, there have been 10 bear markets including the one that may have ended on March 9 of this year, defined as a decrease of at least 20% in the S&P500 index.  They’ve averaged a peak to bottom decline of 35%, and have lasted on average 17 months (read: one year, five months).  Compare this to the average bull market, not including the current 68% run we’re in right now.  The bull markets have averaged a run of 176% from bottom to peak and last an astonishing 68 months (read: 5 years, 8 months).  Said differently, the stock market is on its way up approximately 83% of the time. (All data is from JP Morgan Asset Management and S&P 500 Index).  One more thing: these numbers don’t even include dividends, a key ingredient when investing, and if they did would look even better.

As for the economy, there are several numbers that I could refer to: employment, GDP, payrolls, housing market, inflation, and interest rates, to name a few.  For simplicity’s sake I’ll refer to the average length of recessions in the US.  Since 1900, there have been 22 recessions.  These recessions have averaged 15 months – or just over one year.  Compare this to the average economic expansion, averaging 45 months.  (Source: NBER).  Some call this an economy of long summers and short winters.  Call it what we may – most of the time in this country, we’re moving in the right direction.

The reason I bring these issues up is to encourage you to at all times to retain a long term perspective.  The Great Depression saw 25% unemployment and a stock market decline of 89%.  We are no where need those numbers.

Maintaining perspective is what I help people do, and it’s hopefully what I can help you do as well.  There have always been those who say this is the end, that this time is different, and I suppose they will always be around.  Avoid them like the plague.  Life’s too short to surround yourself with negative and unintelligent/uninformed people who refuse to listen to anybody but themselves.  Till next time, Jack.



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