Monday, July 14, 2008

Average Durations of Previous Bear Markets

On July 7, 2008 S&P 500 went into bear market territory after sliding 20% from its October 9th 2007 all-time highs at 1565.15. The current bear market correction has been going on for more than nine months. So how long do bear markets last on average?

From the table below one could see that the average duration of bear markets has been about 18 months since the great depression. Since 1956 however the average duration of bear markets has been about fourteen months. The average decline since 1929 has been 38.2% versus 31.8% since 1956.




















It has taken S&P 500 about 5.2 years on average to recover from to above its bear market highs since 1929. If we check the same parameter starting in 1956 the average recovery time from a bear market comes out to 2.8 years on average.

If history could be of any guidance, S&P 500 could continues falling for five to nine more months by fourteen to twenty-two percent from current levels. This means that S&P 500 could fall to as low as 967 to 1068 until the end of 2008. Past performance seldom guarantees future results however. One thing will stay true though – investors who are greedy when others are fearful will reap huge benefits over the next few years as they scoop up good quality dividend companies at bargain prices. If you don’t agree with me, please check out Buffet’s recent involvement in WWY and ROH acquisitions.

Relevant Articles:

- Warren Buffet - The richest investor in the World

- Dow Chemical (DOW) To Acquire Rohm and Haas (ROH) for $78/share

- ROH Dividend Analysis

- The Bottom is in

8 comments:

  1. Nice data. I think this bear market will last till later this year. However, for longer term investors there are some great bargains to be had - espcially in the financials. But, I will wait till later in the year before buying. Right now it is a traders market.

    ReplyDelete
  2. Andy,

    The market will do whatever it wants to do. While everyone out there claims that this is a "traders" market, companies like BUD, WWY, ROH are getting snapped at bargain prices. We have a great opportunity to accumulate shares at bargain prices.
    Thanks for stopping by.

    Best Regards,

    Dividend Growth Investor

    ReplyDelete
  3. I've been scouting for some good "deals" on financial dividend stocks. It's a tough game right now tho. ACAS is in my portfolio and has dropped considerably, same with NLY. With IndyMac collapsing and WaMu seriously faultering how are you going about picking from the wide array of financials at already substantially lower prices?

    ReplyDelete
  4. Seattle 787,

    You are correct that financials are a tough buy right now. There's so much uncertainty over financials right now that as a dividend investor I might have to stay away. As a contrarian investor however I believe that once the crisis is over, financial stocks will be outperforming the market.
    Tomorrow I will be posting some stocks which I believe are trading at bargain prices.

    ReplyDelete
  5. Good post with great data. Still too cloudy for my taste but of all the world market I'd go with US right now. Good job!

    ReplyDelete
  6. Dorian,

    Thanks for stopping by. The US market has traditionally performed better than other world markets during tough times.

    ReplyDelete
  7. I did a similar study using a different metrix of duration. Apparently, your duration is the months between peak and trough. Whereas my study measures the months between the months between entry into bear market (the S&P 500 fallen 20%) and trough.

    http://investmentscientist.com/2008/07/30/

    ReplyDelete
  8. Michael,

    Thanks for your comment. Sure, you could create multiple variations using past data.
    Hopefully we'll bottom by the end of 2008 and the economy won't slip further.

    ReplyDelete

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