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May 21 2009

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Secular Bear and Bull Markets

Secular Bear and Bull Markets

One thing I do is spend time researching the history of the markets. While it does not predict the future, there are some interesting observations that you may be unaware of which could make a significant impact on how you view the markets and how you invest going forward.

Over the longer term (75 to 100 years) markets go up. However, most investors do not invest over that time-frame. Generally, an investor’s long-term time horizon is in the neighbourhood of 20 or so years and would be defined as an intermediate timeframe. The trends for “secular” markets generally last longer than market or business cycles. During these intermediate timeframes, markets are either in “secular bulls” (going up) or “secular bears” (going sideways or down). Below is a chart for the S&P500 since 1871

 

 

S&P 500 Secular Bull and Bear Markets

S&P 500 Secular Bull and Bear Markets

 

 

Source: Reuters Data, Metastock software, (see note below)

A worthwhile book on the subject is “Unexpected Returns: Understanding Secular Stock Market Cycles” by Ed Easterling. While this book was published in 2005, it provides a great overview of history. Note: The chart in this article was derived from Figure 5: Secular Bear and Bull Markets Profile of this book.

Since 2000, we have been in a “secular bear” market. How long will it last? No one knows for sure. What kind of investment strategy is necessary in this environment? In my opinion, whether you are a do-it-yourself investor, advisor, portfolio manager or pension fund, “tactical asset allocation” will be the key! Shifting assets when necessary away from the long term strategic asset allocation will be necessary to achieve and protect returns going forward.

Disclaimer:” “Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.”

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