What is a bear market?
A decline in the equity market of 20% on a closing basis.
We have seen 13 bear markets, as defined above, over the last 63 years, or on average about 1 every 5 years. (Standard & Poor’s)
The average bear market took a little less than 15 months to go from peak to trough, with an average decline of about 32%. (Standard & Poor’s)
No bear market feels average or normal. It feels like the end of the world.
A common reaction to a bear market is to panic and sell. We’re all guilty of this reaction, thinking the bear market we’re in is DIFFERENT.
Sir John Templeton, of Franklin –Templeton: ‘Among the 4 most dangerous words in investing are IT’S DIFFERENT THIS TIME.’
Peter Lynch: ‘Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves’.
Ben Bernanke: ‘Don’t try to time the market. It’s very, very difficult to do. There may be a couple of people in the world who can do it, but if there are, they’re not telling you.’
How do I advise most of my clients in most bear markets?
- Do nothing and,
- If able, keep buying.
It’s not IF a bear market will occur, it’s WHEN.
Our reaction to the bear market is a critical variable in a lifetime of successful investing.