A Record Breaking Bull Market? Not Really! Get Ready for the Bear.

8 September, 2016

Filed Under: Financial Planning | Investment Services

A bull stock market is everyone’s favorite animal until the bear shows up and creates havoc, especially for those investors who treat the market like a casino. 
So, how does this stock market run compare to the Bull markets of the past and what we can we expect moving forward. 

The current rally started on March 9th 2009 and celebrated its 7th year this past March and is now the 4th longest Bull market in history thus sharing elite company. 
The longest bull market in history occurred from 1940 to the early 50’s lasting 181 months and returning a total of 935.8%. In more recent times, the longest bull run occurred between the mid 70’s and the mid 80’s over 155 months for a total return of 845.2% .(1) 

The length of a stock market is one thing but its strength is something else. What I look for is the expansion of the markets during rising markets and the decline during down markets. The current bull market in particular is weak in comparison to some other long-term bull runs with a total return of 246% as of July 31st 2016. (2) 
To put this into perspective, based on a 7 year GIC, currently paying 1.85% per year, the total return would be approximately 14% or 232% less since 2009! It would take more than 100 years for a GIC based on today’s rates to match the returns of the TSX in the past 7 years alone. Also keep in mind the current total bull market returns, pales in comparison to others of the past. 

Since 1956, the total return for the bull markets of the TSX has been 1,727%. The total decline for the bear markets have been -288% for a difference of 1,439%!!! (3) 

Since 1956 ,bull markets In Canada, and more particular the Toronto stock exchange ,have lasted on average a total of 48 months and have had an average total return of 122%, whereas a bear market has lasted an average of only 9 months, and have averaged losses of only 28%. (4) 

In the US, bull markets of the S&P 500 stock market have averaged a total return of 157% over an average duration of 51 months, whereas bear markets have lost only 27% with an average duration of only 14 months.(5) 

Unfortunately for many investors, they only remember the stock market declines and this is due to 3 reasons. 

First, as humans, we are wired to to run away from danger, and secondly, the uninformed become fodder for the media. 

The third reason is that investing is not taught in elementary and high school or in university for the most part, leaving many uneducated and shackled to the erroneous information provided by their parents and grandparents. 

This brings me to the next point. Given that the current bull-run has far surpassed the average one, what should investors do? 

This same question was probably asked millions of times over the years and regardless of the era, my response would have been the same and that is “Never waste a good Bear market”! 

Bear markets are one of the greatest wealth creators, and although this sounds contrarian, it’s true. I also refer this as the Stock Market Paradox: “Less is More.” 
Intellectually, we all know that it makes great financial sense to buy things on sale and we do this all the time. Be it a house, a car, clothes or food we all enjoy getting the best deal. Well, why not with stocks? 

Besides our “wiring’” and lack of education many investors are conditioned to believe that the stock market is somewhat like a casino, run by a gang of hoods and charlatans. 

While there have been a number of dishonest characters on Wall Street, the facts speak for themselves. Great company stocks go up over time. And, if you own dividend paying stocks, you get a dividend while you wait for the markets to return to form. 

Dividends are not guaranteed, but they are as close to a guarantee as you will get by selecting companies that have a long history of dividend payouts ( Canadian banks anyone?) 

with a dividend payout ratio of no more that 60% of their profits which leaves plenty of room for future growth. 

In reality, you are not actually buying stocks, you are buying companies. These are the same companies you purchase goods and services, from donuts to soap to soup. As a shareholder, you own a piece of a great company, and the earlier investors understand this, the greater amount of wealth they will accumulate. 

I think it makes sense, that since we are buying companies products and services that we love and trust, that we should also own them. Sounds easy? 

It would seem so, but many people get in the way of themselves. What I mean is that many investors are caught up in what I call the Vortex of Fear. 

This vortex consists of the following three elements. 

 

LACK OF KNOWLEDGE + THE MEDIA =FEAR 

It’s easy to understand why so many investors commit the same investment mistakes over and over again. Fear is created by not understanding something, thus letting others, such as the media, friends and the “guru” at work dictate their investment decisions. Here’s a simple test. 

If these reporters and media types are so right, then why are they still working? 

As a bear market comes about, smart investors wring their hands with glee, at the notion that they are going to amass more wealth, unfortunately or fortunately, depending on what side of the trade you are on. All,at the expense of many hard working people. 

In summation, we are now past the average historic bull market and sooner than later we will enter into a bear market. Once again, we will hear the usual “fortune tellers” coming out of the woodwork like termites steadily eating away at your money. 

The HR departments of many media companies will go to work developing the scariest headlines like piranhas swarming their catch. After all, that’s how they make their money..advertising. 

If you think for a moment that YOU are their customer, then think again. Their customers are the big corporations who pay millions of dollars to buy up advertising, and the more salacious, the more profitable for them at your expense. 

There are some that believe they can get in and out of the market profitably on a CONSISTENT long-term basis. Perhaps there are a few, however I have yet to meet one person in the past 30 years who can lay claim to this. 

Let’s look at the facts. If you would have invested $10,000 it would have grown to $58,332 between 1993 and 2013. If you had MISSED just the TEN best days in those 20 years totalling 7,300 days, your $10,000 would have returned just $29,111 or less than half had you staid invested.(6)
 
Therefore, when asked if I can get a client out of the market before a bear market starts, then get them back in at the beginning of a bull market, my answer becomes self-evident. 

For the average hard working person the best way to amass wealth is to stay put. All bear markets come to an end a new bull market will emerge. The “fortune tellers” will retreat, the piranhas will abate and many investors will be left muttering the two wealth busting words: “ IF ONLY…” 

Therefore, the best advice is to stay invested and buy more when the markets go down with new cash and re-invested dividends. 

If there are changes in your personal financial or retirement planning that requires our immediate review please call me. 

If you are not currently a client feel free to ask for a complimentary get together. 

Of course, you should always seek the advice of a wealth professional to review your personal circumstances before investing. 

 

LIVE WELL. INVEST WISELY. 

Robert Roby,  CFDS, CPCA 
Senior Wealth Advisor

 

. item 1-5 source of information: MacKenzie Investments
. item 6 source JP Morgan asset Management Using Lipper 20 year returns for the S&P 500.

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