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Learning from History- A Bull Market Follows Closely Behind the Bear

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I just read a blog post by Million Dollar Journey called "How to Take Advantage of the Market After the Crash of 2008". It sparked the basis of this article about bull market following closely behind a bear.



Consider this:

If you look at the past 30 years and use the Dow Jones as a guide, you can draw a few conclusions.
  • no bear market is forever
  • on average it last for about 3 months to about 18 months
  • the decline is always followed by a rally
  • the rally always manages to erase the previous declines
Not convinced?
If you notice the other big drop in stocks near about the 1929 mark, where the Great Depression occurred. If you sold off then and swear off stocks you would have miss one of the longest bull runs in history.

More evidence?

If you look at S&P 500 daily returns and do up a table of a hypothetical situation like this below:
What if you miss the BEST days for investment?
(from 1 Jan 1982 - December 31 2005)
If you miss the BEST: Your average annualised returns DROPS TO:
10 of 6261 trading days (0.16%) 8.10%
20 of 6261 trading days (0.32%) 6.20%
30 of 6261 trading days (0.48%) 4.60%
40 of 6261 trading days (0.64%) 3.10%
50 of 6261 trading days (0.80%) 1.80%

If you had just missed 50 days of the bottom of the bear markets during the period when the tides are turning, just a tiny winy 0.80% of the total days, your returns would have been wiped out and you will have just 1.8% returns for 13 years of risk taking.

No one can predict when the market will turn, but now is the time to stay in the market not out of it. I am buying stocks and ETFs on top of dollar averaging through the bear market.

What is your strategy to build your retirement fund and earn your financial freedom?

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3 comments:
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la papillion said...
March 11, 2009 at 10:43 PM  

Hi,

Thks for visiting my blog. Yours look very interesting as well :)

If you miss a few days of the rally, your returns will suffer. Yes. But maybe you should try what if you miss a few WORST days of investment. Then you will have a clearer picture whether buy and hold is the best strategy. Knowing that bearish times are more intense and shorter than bullish times, I think you'll probably do very well if you miss just a few WORST days.

I'm saying that not because I'm against buy and hold. Just to offer another view point to it.

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Lemizeraq said...
March 12, 2009 at 11:28 PM  

Hi la papillion,

Yep. It will be good if i know exactly when the stock market is going down by a lot like this present bear. However, I know I am not able to guess where the market goes.

So if i cannot control the timing, i want to stay invested in the market so as not to miss the bull phases because all i need to do is to stay passive and keep buying bits every time.

Incidentally, i tried getting out of the market in Aug 2007, but was advised not to by a bank's financial advisor as "the market is going up". I did half way liquidated one position but left the other.

So it illustrated my point that I cannot get the timing down. And I need to know when to get back in again.

Thank you for stating your view, I will visit your site regularly. So I can build learn from people like yourself.

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la papillion said...
March 13, 2009 at 12:09 AM  

Lemizeraq,

You're most welcome. I'll be visiting your blog too. Let's do a link exchange. I'll put your blog up on mine.

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