iBankCoin
Joined Nov 11, 2007
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Is the Secular Bear Market Coming to an End?

“A decade ago, I concluded that we were in the early stages of a secular bear market, and that investors needed to adjust their risk postures accordingly. Back in December 2003, I penned a piece for the Stock Trader’s Almanac, titled Managing the Very, Very Long Term, based on this blog post from November 2003.

Long time readers know this is a major theme to for me. Much of my commentary, presentations and investing posture has been about longer term, secular cycles. Search the Big Picture for the phrase “secular bear market” and 659 results come up (in quotes, 130).

Here’s what I wrote back in 2003:

“The panoramic view leads me to the present conclusion. Following an 18-year Bull market [1982-2000], and a three year Bear market, we are now committed to what looks like a long-term military obligation in Iraq. In the grand scheme of things, I suspect we are in for a harder long-term slog than the mere 3 year Bear market suggests.

Historically, this suggests an extended period of range bound trading as the highest probability long-term scenario in my view. I expect vicious rallies, and wicked sell-offs to occur — over shorter term cycles — within the larger timeline. Active management and capital preservation are going to be the key methods of outperformance.”

Let’s put this into more specific quantitative terms. According to data from Fidelity:

• Average secular bull market lasted 21.2 years and produced a total return of 17.2% in nominal terms and 15.9% in real terms. The market’s P/E more or less doubled, from 10.1 at the start to 20.5 at the end.

• Average secular bear market lasted 14.5 years and had a nominal total return of +1.0% and a real return of –2.3%. The market’s P/E compressed by an average of 9 points, from 20.5 at the start to 11.3 at the end.

Here we are, a few weeks away from the start of the 14th year of the secular Bear market that began March 2000. The question on more than a few peoples’ minds has been whether or not it is reaching its end.

To answer that question, we need to understand exactly what a secular bear market is. Over the years, I have developed a my own definition of Secular Bear Markets…”

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