Opportunity Beckons During the Worst of Times

April 5, 2023
Originally published JULY 7, 2022

Recently I saw an investment chart in Bloomberg laying out an illustration, where an investor added money to the stock market only two weeks following Lehman Brothers bankruptcy. The market and the entire economy were on the precipice.

It had become frighteningly clear; we were in the worst economy since the Great Depression. At this point the market was down 25%. Congress was continuing to debate what would eventually become a $700 billion bailout of the financial system. Some may recall its acronym TARP, which stood for troubled asset relief program.

It is not an understatement that our financial system appeared in dire straits. It was safe to say few were preaching the gospel of stocks for the long run and looking at this as a buying opportunity.

Despite the market continuing to decline more than the equivalent of another bear market and over five months before the market would bottom, an investment made October, 1st 2008 would be made whole by the end of 2009 and today, despite the present bear market, would have more than quadrupled (> 400%) its money.

Historically waiting for a bear market to be recorded has been a poor sell indicator. In fact it is quite the opposite. It has been a fantastic contrarian buy indicator.

The example above is taken from the most extreme recession the global economy had experienced since the Great Depression and in the short run the investor took 15 months to break even. The current bear market is the 27th since the crash in 1929. The average bear market has declined -35.62% which includes all bear markets from 1929 through the Covid pandemic the shortest bear market on record.

The average bear market lasts 289 days and the present one as I write this took 165 days beginning January 3rd of this year and setting a low on June 17th.  We are not market forecasters or prognosticators, but it is fair to point out that if June 17th proves to be this bear market’s low, the bear market will be recorded as having ended on that date. A bear market necessitates a 20% decline from the peak to the trough. With hindsight one may look back on the 17th as the end despite all the storm clouds and bad headlines in the news.

Please see the chart I've compiled below to show the start and end dates of past bear markets going back to the Great Depression. Please note the chart is compiled least to greatest length in bear market days not by chronological order.

Disclaimer: Past performance does not guarantee future results. Investors cannot directly invest in an index. The present Bear market's recent low is a decline of (23.41%) recorded at the market close 6/17/22.Source: Ned Davis Research, 12/21.

I know that the stock market is a leading economic indicator. That means that a bear market often precedes economic challenges and frequently leads to a recession. It’s clear that we have economic challenges. I see and feel it every time I fill up my car and look at my grocery bill. Because the stock market is a leading economic indicator, the news will continue to be bad while the stock market is already well amid a recovery and often making new highs.

Sadly, to the cynic, it can make one jaded. Bread riots in Tunisia and market highs can seem cruel to an observer but the market will be signaling better prospects for tomorrow.  We preach sticking to long-term outlooks and investment objectives.  While the news will continue to be unsettling, it does not necessitate the market will follow. In fact we know from history that the opposite is in fact true.      


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