Bear Market Frequency Ratio

By Author: Anthony Green
Total Articles: 36
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So, there you have the bear markets of the 20th century, and the first one of the 21st century. There has been a bear market every 4 years on average. The longest time span between bear markets has been the most recent bull market, which was 10 years if you regard 1990 as a major bear market; 20 years if you take a view.

This is the powerful message, that even if you weight all bear markets as equal, and dont think in terms of multi-decade papa bear markets within which mama and baby bull markets are possible, bear markets are frequent enough to make it impossible to ignore them, even in major boom times, or to avoid their losses. The decade of the 1990s was unique and, like the bear markets of 1987 and 1990, occurred because of a unique set of circumstances that are unlikely to repeat, let alone be considered a new paradigm for bull markets in the future at least not in our lifetimes. Thus, the investor must try to understand bear markets better. Otherwise, the profits from the previous bull market are usually wiped out.

Average Percentage of Value Losses

You have also seen that the percentage of decline ...
... in bear markets ranges from as little as 13.9% up to 90%. The total of all these percentage losses is phenomenal. The losses represented by all these declines are staggering, but when you realize that the blue-chip averages never fall as far as the great mass of small cap stocks, the damage to your wealth during a bear market can be more than most people can deal with. The averages mask a greater percentage fall by the majority of stocks not in the averages.

Add to that the economic and fiscal damage that often accompanies a bear market. Say you lose your job, and that small stock portfolio was your safety net. Or you needed that extra money for the kids college fund, or an unexpected illness. You can be sure that the kids education or sickness in the family wont only occur when your stocks have recovered any losses they might have suffered in the prior bear market. Unfortunately, during the 1990s, people came to regard investing in stocks as like putting their money in the bank, except that many were making 30% per year instead of bank interest of 5%.