The US Stock Market has delivered great returns for patient long-term investors.
You just need to have a 20 - 30 year timeframe, and avoid panicking.
If you look at this long-term chart, the three long bearish market periods that stick out are:
1929-1944
1966-1982
2000-2012
The goal is to be able to survive these long bear stretches, stay invested and keep investing. I refer to those stretches as cyclical bear markets. They are much longer and more memorable than your typical, plain vanilla 20% bear market. The 20% bear market is a bear market for ants, though they are still scary for the novice and those who fail to learn from history.
We tend to move between long cyclical bull markets and long cyclical bear markets. A typical cyclical bear market could last for a decade or more. A typical cyclical bull market could last for about two decades or so.
Since 2009 or so, we have been in a cyclical bull market. I believe we are getting closer to the end of it, and we may be getting overdue for a cyclical bear market in a few years or so. I would still be invested in equities through the ups and downs however, as I do not time any markets. But I do like to mentally prepare for anything, financially too I guess.
The previous cyclical bull market was from 1982 to 2000. It was characterized by a boom in earnings, dividends and share prices and a decline in interest rates. Sadly, it ended with excess and overvaluations, which took about a decade to resolve.
The cyclical bull market before that ended in the 1960s. It started in the 1940s.
We had a long cyclical bull market in the 1920s as well, which lasted for about a decade or so. That being said, the world in the 1920s was different, as the economy was more cyclical than today and there were not as many fail-safe mechanisms like FDIC insurance, unemployment insurance, pensions/social security etc. Plus, the sector composition of the economy today is not as cyclical as the sector composition of the economy from the 1920s or earlier.
The important thing is to participate in the bull markets and benefit fully, without getting cared away and losing a lot during the cyclical bear markets.
Each cyclical bear market is characterized by different reasons for it.
I use to following model to estimate forward returns. They are a function of:
1. Dividend Yields
2. Earnings Per Share Growth
3. Change in valuation
The first two items are the so called fundamental sources of returns. The last item is the speculative source of return.
This simple model helps me put everything else in context.
In the long-run, most of returns are a function of dividends and growth in earnings per share. The change in valuation matters the least in the long run.
To paraphrase the Oracle of Omaha, in the short-run the market is a voting machine, but in the long-run it is a weighting machine.
Changes in dividends and earnings are not as noticeably imporant in the short-run, which is a period of 5 - 10 years. But they are really important in the long run. Without growth in earnings per share, those shares would just keep oscilating at a given range forever. Without a dividend, investors would basically expect to generate no returns in the long-run.
In the short-run, changes in valuation matter a lot. That's because share prices tend to move above and below any reasonable indication of intrinsic value all the time. The share prices for large corporation scan move very quickly, above and below any estimate for fair value. This is all driven by sentiment. This is all noise if you are already invested, but a potential opportunity to scoop up value when it is on sale. *
That being said, if you can acquire shares at 15 times earnings, you'd do slightly better in the long run than acquiring shares at 30 times earnings. Provided of course it still grew earnings and dividends at a decent clip. The longer you do that for however, the lower the impact of a good entry valuation, and the higher the impact of earnings per share growth and dividends. In other words, it's far better to buy a quality company at a fair price, than a mediocre company at a steal price, to paraphrase the Oracle of Omaha.
If we go back to the model I introduced, it makes it helpful to put things into context.
For example, during the 1929-1944 cyclical bear market, earnings per share stayed low for almost 17 years. In addition, we had a valuation compression of the earnings stream that wasn't growing in the first place. All the returns for a 1929 - 1954 stretch came from dividends as share prices went nowhere for 25 years. The only reason I use a 15 year time frame for this bear market is due to reinvested dividends. Lower prices pushed dividend yield up. Dividends were cut, but the decline in dividends was much lower than the drop in share prices. Dividends fell by 55% while stock prices fell by 85%. We had deflation, which was bad for earnings, but increased the purchasing power of cash dividends. Dividend yields were high, which cushioned investors against declines in share prices.
The 1966 - 1982 cyclical bear market was during a high tide of inflation for the US and the world. While earnings and dividends increased in nominal terms, they did not increase in real terms by much. In addition, share prices went nowhere in nominal terms, even though earnings were increasing. That's because we saw a contraction in the valuation multiple. Share prices actually declined in real terms, while dividends and earnings held their ground. Ultimately using inflation adjusted numbers helps, because we care about purchasing power, that is especially important in retirement. Dividend yields were high, and dividends maintained purchasing power during that bleak period, which cushioned investors against declines in share prices in real terms.
The 2000 - 2012 cyclical bear market was primarily caused by a decline in valuations and an earnings per share stream that didn't really grow until 2011- 2012. Furthermore, dividend yields were very low at the beginning of this period. Therefore, they could not adequately cushion investors against declines in share prices. This is a good model warning those who expect to just sell stocks in retirement when share prices go nowhere for extended periods of time. (Hint you increase risk of running out of money in retirement).
The typical bear market is characterized by a 20% decline peak to through.
While we have had a few such declines since 2009, those were basically very short lived. They have inspired a whole generation of new investors who believe in buying the dip that everything will work out soon.
We basically had some short blips on the radar, such as the 2020 Covid Bear Market, the 2022 Bear Market and 2025 Bear Market. In hindsight, those were good opportunities to acquire stock at a good price.
So many here talk about 2022 like it was some type of great depression. Perhaps that was their first major stock market decline. But 2022 and even 2020 were just a blip on the radar. Especially the most recent one in 2025.
The real bad bears like the lost decade of the early 2000s or the stagflationary lost decade of the 1970s are the ones to look out for. The worst is the Great Depression, which really affected the economy, and people's livelihoods for tens of millions in the US (and even more worldwide).
Imagine the sentiment with investors, if we get another lost decade like the early 2000s.. Most do not remember the early 2000s, which had a long 12 year stretch of no returns, high unemployment, and two 50%+ stock market crashes. Plus a housing crash and a bunch of other unpleasant stuff.
This is why I invest in Dividend Growth Stocks. I focus on good companies that make money throughout the economic cycle. These quality companies generate more cashflows than they know what to do with. Thus they are able to keep paying and even growing the dividends over time, for many years to come, if not decades.
The stock price can go up or down in the short run, above and below any reasonable valuation basis for intrinsic value. Stock prices are very volatile in the short-run. Dividends are much more stable and dependable however. This is why I focus on the dividend, and ignore the stock price, unless I have money to deploy and take advantage of any opporunitiies.
Focusing on the dividend helps me keep invested, as I am getting paid to hold and ignore the stock prices. Plus, I do not need to sell stock in retirement to pay for my expensive tastes. I can simply cash those dividend checks. Along with any Social Security checks.
I can build my own portfolio, slowly and over time. I can customize it to include businesses that fit my characteristics. I can then diversify, and manage risk properly, following my entry and exit criteria. Then sit tight, and enjoy the ride.
*For example, in 2025 folks were very scared that Alphabet (GOOG) would lose the AI race and thus pushed the stock below $160/share, which was equivalent to less than 16 times forward earnings. Today the stock sells at $300, which is roughly 30 times forward earnings.
