When you sit with good company for two hours, you think it’s only a minute, but when you sit on a hot stove for a minute, think it’s two hours. Relativity matters!
Bear markets in stocks feel excruciatingly painful, and it seems like they last forever. The market doesn’t go down in a straight line, but arriving to a sea of red price movement most mornings gets really old, really fast. That’s to say nothing of the audible deflating of one’s net worth.
In reality, however, the average bull market lasts over four times longer than the average bear market. Bull markets don’t go up in a straight line, either, and stocks seem to grind begrudgingly higher, up and over a very real wall of worry. Lo and behold, 51 months later – on average – the S&P 500 is up almost 140%, and an initial $10,000 stake is worth a little over $23,000.
Those four-plus years of gains are typically followed by a pullback lasting a full year and clawing back slightly over 30% of the gains. Those bear market stats take into account an almost 50% pullback over the course of two-and-a-half years as the Dot-Com Bubble burst to welcome the new century and an almost 60% pullback over 17 months amid the carnage of the Great Financial Crisis. On average, the portfolio once worth $23,000 has pulled back to a value of $16,000, but that’s still 60% larger than the stake initially invested! Repeat that cycle a few times, and that’s a good bit of wealth being amassed, in spite of the white-knuckle episodes during the journey.
Neither bull nor bear markets tend to be average in their duration or magnitude, but the historical data stands to prove that the pullbacks are the unpleasant price of admission for the handsome gains that stocks have provided investors over the long haul, provided they stayed invested. The magnitude of the bull markets dwarfs the magnitude of the bear markets, and investors have come out ahead.
Science has proven that humans are wired to experience pain much more acutely than they enjoy pleasure. Hence, it feels like bear markets drag on and on and on, while bull markets repeatedly have to climb that wall of worry. In spite of the inherent urge to want to “do something” – anything – to alleviate the perceived pain of a bear market, investors have been best served staying the course and wincing their way through the unpleasant bear market ride.
Mark Twain said there are lies, damn lies and statistics. Well, stats may not tell the entire story, and they offer no guarantee of future results, but the stats tell a pretty compelling story…even when the market isn’t always coming up roses. Historically, there has been a light at the end of bear market tunnels, and oh, how things have turned for the better once the tunnel has passed. Sometimes the hard part is just “doing nothing” and making the conscious decision to stay invested!