There truly is nowhere to hide. The good news, if there is any, is that we’ve been here before. Bear markets can be painful, but they are completely normal.
- There have been 26 bear markets in the S&P 500 since 1928.
- The average loss during these 26 bear markets is 36%
- The average length of a bear market is 289 days/9.6 months
- They occur roughly every 3.6 years
Unfortunately, from here, there is no get out of jail free card. It is entirely possible that things get worse before they get better. It’s the nature of financial markets. Ultimately the best strategy from here is to stick to your long-term financial plan, cut your spending if you can, systematically add to investments if you can, and most importantly try to be non-emotional.
In life, it's human nature to want to take control of the wheel when things are going poorly. Unfortunately, when investing, this is one of the worst things you can do. Investing, like most life decisions, is best done on a non-emotional basis. Emotional highs and lows don’t frame our view in a reasonable light and lead to poor decisions.
As I wrote a few weeks ago, timing these volatile periods is nearly impossible. Since its inception, the S&P 500 has averaged roughly 10% per year. Over this time period if you were to miss and 25 best days in the market, below is the return you would have received over that same time frame instead of the 10% by staying invested.
- Missing the 5 best days: 8.5%
- Missing the 10 best days: 7.5%
- Missing the 20 best days: 5.8%
- Missing the 25 best days: 5%
Additionally, Half of the S&P 500 Index’s strongest days in the last 20 years occurred during a bear market. Another 34% of the market’s best days took place in the first two months of a bull market—before it was clear a bull market had begun. In other words, the best way to weather a downturn could be to stay invested since it’s difficult to time the market’s recovery.
Again, I know it’s not easy to “lose money” (quotes intended). However, to achieve your long-term goals, you must have a long-term, consistent, and non-emotional focus.
In closing, here are a few great quotes and words of wisdom from legendary investors which I consistently go back to in times of uncertainty. Enjoy and please don’t hesitate to reach out if you or anyone you know would like to talk.
- Bear markets are normal.
- The reasons are always different, but the emotions are the same.
- They do come to an end eventually.
- You’re not a genius on the way up or an idiot on the way down.
- Nothing lasts forever. When growth stocks were going up every day, it felt like it would never end. Now that growth stocks are going down, it feels like it will never end. Everything ends, eventually. -Michel Batnick
- “Be fearful when others are greedy, and be greedy only when others are fearful.”-Buffett
- "If you're making a good investment in a security, it shouldn't bother you if they closed down the stock market for five years. -Buffett
- “There will be bear markets about twice every 10 years and recessions about twice every 10 or 12 years
but nobody has been able to predict them reliably. So, the best thing to do is to buy when shares are thoroughly depressed and that means when other people are selling.” — John Templeton - Every economic recovery since World War II has been preceded by a stock market rally. And these rallies often start when conditions are grim. — Peter Lynch
- “This one is different,” is the doomsayer’s litany, and, in fact, every recession is different, but that doesn’t mean it’s going to ruin us. — Peter Lynch