Shelby Davis once said, “Bear markets make people a lot of money, they just don’t know it at the time.” Based on some fancy rounding, the S&P 500 hit the unwritten 20% decline rule (19.77% for sticklers) for a bear market based on 2018’s September high to the Christmas Eve low (thanks Santa).
Yet, despite that, the S&P 500 finished the year with a -4.4% total return. Global markets looked less pretty. And cash was king again.
Unless, of course, you’re a net buyer of stocks. To paraphrase Davis — bear markets are a great buying opportunity, they just don’t feel like it at the time. That feeling is the hard part for new investors and the rest of us who forgot how the last bear market felt.
Now, not all bear markets are like the last bear market. The lesson from that one was that it was excruciatingly hard for many investors to buy but also the greatest buying opportunity for anyone with time on their side.
So now is when patience and fortitude and tuning out the noise comes into play. Without that, none it matters because while buying stocks at a discount seems obvious on the surface, the market plays mind games on everyone.
There are no rules stating equivocally how long a bear market must last. No rules say where the market bottom must be or the time it takes to get there. And market fearmongers don’t care that every prior bear market ended as long as you’re entranced by their comparison to some past crash and the worst-case scenario due right around the corner.
It’s all noise. It tricks us into constantly thinking in the short term. It increases the risk of turning paper losses into real losses
And if you’re not comfortable seeing losses in your portfolio, buying something that’s fallen sharply, and seeing it fall further after you bought it, then the entire process becomes multitudes harder.
The thing about Shelby Davis’s quote at the start is you have to be in the game and outlast the bear market to make a lot of money. Simple math says not everyone can do it but it’s hugely rewarding for those that do.
Let’s dive into the numbers.
Below, I added a table comparing all the market returns sorted best to worst. Here are a few general observations on the numbers:
- 2018 officially ends the longest streak of gains for the S&P 500 at nine years (2009 to 2017). The only other time that happened was 1991 to 1999.
- Only three countries finished positive – Qatar, Peru, and Russia — but Qatar was the only one to really stand out at 30%.
- In fact, every global developed market saw losses this year.
- 29 emerging and developed countries were down 10% or more, 9 were down 20% or more, 3 were down 30% or more, and one — Turkey — ended the year with a 41% loss.
- Health Care, Utilities, and Consumer Discretionary were the only US sectors to end the year with a gain, Health Care was the best at 6.5%.
- The Energy sector was the worst with an 18% loss. It’s also on a two-year losing streak.
- The newly reclassified Communication Services sector (as of Sept. 2018 and previously Telecom) is the only other sector with a two-year losing streak.
- And Pakistan is the only country to see two-years of losses. None have three losing years or more.
I also added returns from 2017 to the table to show the stark contrast between the two years. It’s surprising, but not really. Sometimes markets get extended before correcting themselves. That it happened almost across the board makes it interesting. The two years definitely stand as polar opposites.
- Fear Not – Above the Market
- Daniel Kahneman on Cutting Through the Noise – Conversations With Tyler
- How Not to Be Stupid – Farnam Street
- To Help Put Recent Economic & Market Moves in Perspective – R. Dalio
- Data Update: A Reminder that Equities are Risky, in Case You Forgot! – Musings on Markets
- 10 Personal Finance Lessons for Technology Professionals – T. Hunt
- 20 for Twenty: Selected Papers from AQR Capital Management – AQR
- 35 years ago, Isaac Asimov predicted the world of 2019 – The Star
- Technology, Ranked – PaleoFuture