Historically, Odds Strongly Favor Bulls
As the most overhyped recession and bear market since the Great Depression comes to a close it is time to tally the score. How well have bears fared in recent history? Not so wall as it turns out. Between 1982 and 2009 bears enjoyed a total if 4 years, yes, a whole four years of sustained selling out of a total of 28 years. That is a success rate of just .14, which is marginally better than the broken clock, but far under performing a coin toss.
Even if you add in Black Monday, 1990 recession, the Asian financial crisis of 1997 you can see they are merely blips and add just six months at most of sustained selling.
But what about the periods in the 60’s and 70’s when the market languished? As it turns out bulls were victorious when you factor in dividends. Sure the markets were flat for almost a quarter century, but a three percent dividend yield compounded over two decades amounts to an eighty percent increase in principle. There was a bear market in 1974 but like the vast majority of bear markets it was very brief, lasting a little over a year.
Statistically, the odds of making money on the long side far exceeds that of the short side.
6 Responses to “Historically, Odds Strongly Favor Bulls”
Comment from Al
Time April 15, 2009 at 8:33 pm
But, as your chart shows, the most recent “bearish victory” has broken below the lowest level of the last “bearish victory”, does it tell you something? Plus, on your chart, the volume picks up as the recent “bearish victory” unfolds, this in fact indicates that the selling pressure has been intensifying, yes?
Anyway, thanks for the chart.
Comment from SpellCheck
Time April 16, 2009 at 5:43 am
Learn to spell. Your commentary is bad enough but your constant inability to spell correctly makes you look like even more of an amateur.
Comment from Administrator
Time April 18, 2009 at 11:44 pm
I use the Firefox spellchecker extension, but is isn’t good enough. I write fairly lengthy articles so the odds of a spelling mistake increases.
Comment from TJ
Time April 20, 2009 at 5:33 pm
If you believe buy and hold works well over time, this graph goes back to 1870.
http://dshort.com/charts/SP-Composite-secular-bull-bear-markets.html?SP-Composite-secular-trends
Factoring out inflation, the S&P composite grew 6-fold over nearly a century and a half. Dodging the big bears meant 1500-fold growth. Big bears just don’t leave much to live on.
Comment from TJ
Time April 20, 2009 at 5:43 pm
Will it really last years?
Equity price declines generally last 2-5 years in recessions caused by financial crisis, according to a paper by professors Reinhart and Rogoff titled The Aftermath of Financial Crises.
This diagram (link) clearly shows that the worst may not be over for us now; to the left is the size of the decline, to the right is the duration, from peak to trough. Note that white bars are “currently ongoing” recessions.
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Comment from jack carter
Time April 14, 2009 at 6:34 pm
Your constant trill on the manufactured economy break down is getting old. Of course the long range course of the market is up, population assure that. It is lemmas between the rallies that destroy investors. Some humility and sense of history would greatly help your writing style, and time will help to heal your ignorance.