Bear Markets 1871 to Date: Duration and Magnitude

Bear Markets 1871 to Date: Duration and Magnitude

Bear Markets 1871 to Date: Duration and Magnitude by GREENBACKD

This week I’ve examined the course of bear markets from 1871 to date (really to March 2009, the end of the last bear market). This post is part 2 of last week’s post about the duration and magnitude of all bull market periods in U.S. stocks since 1871, which used the S&P 500 price series from Shiller’s publicly available database and the method adopted by Butler|Philbrick|Gordillo and Associates’ post What the Bull Giveth, the Bear Taketh Away. A bear market is defined as a drop in prices of at least 20 percent from any peak, and which lasted at least 3 months. A bull market was defined as a rise of at least 50 percent from the bear market low, over a period lasting at least 6 months.

Chart 1 and Table 1 describe every bear market since 1871 in the S&P, including duration and magnitude information.

Chart 1. Bear Markets since 1871

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Table 1. Bear Markets since 1871 – Statistics

bear markets


The average bear market lasts 43 months–about 3 1/2 years–and wipes out 37 percent of the market’s gains. Butler et al. point out that a drop of this magnitude requires a gain of about 60 percent to break even. The average bull market since 1871 has gained 182 percent, so the first third of the bull is simply making back losses from the bear. If we could figure out a reliable means to avoid bear markets we could pocket all of that gain, but, as far as I am aware, none has every been found. Timing mechanisms based on valuation don’t work, and neither do timing mechanisms based on price action. Most timing mechanisms generate too many false positives–signals to exit when no bear eventuates–and so increase trading costs and tax events. Bear markets and volatility are simply the cost of doing business in the market.

Very good, long term gains are available for investors prepared to remain invested in value strategies through thick-and-thin. My firm, Eyquem, offers low cost, fee-only managed accounts that implement a systematic deep value investment strategy. Please contact me by email at [email protected] or call me by telephone on (646) 535 8629 to learn more. Click here if you’d like to read more on Quantitative Value, or connect with me on Twitter, LinkedIn or Facebook.

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My name is Tobias Carlisle. I am the founder and managing member of Eyquem Investment Management LLC, and portfolio manager of Eyquem Fund LP. Eyquem Fund LP pursues a deep value, contrarian, Grahamite investment strategy based on the research featured in Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (hardcover, 288 pages, Wiley Finance, December 26, 2012), and discussed on Greenbackd. I have extensive experience in activist investment, company valuation, public company corporate governance, and mergers and acquisitions law. Prior to founding Eyquem, I was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions I have advised on transactions across a variety of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam, ranging in value from $50 million to $2.5 billion. I am a graduate of the University of Queensland in Australia with degrees in law and business (management). Contact me I can be contacted at greenbackd [at] gmail [dot] com. I welcome all feedback. Connect on LinkedIn, where we’re Friends.
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