A bear market (a market decline of at least 20% from high to low) is a common occurrence in the stock market.
I recently read 10 facts about bear markets written by Tsai Capital, an investment management firm.
Here’s a summary of what I read:
1. Bear markets are defined as a fall of at least 20% from peak to trough. A new bull market occurs when there’s a 20% gain from the most recent trough. Bull markets usually start during periods of maximum pessimism.
2. Bear markets are common. Since 1928, there were 26 bear markets in the S&P 500 index, a US-centric index that consists of major companies like Apple, Alphabet, and Amazon.
3. Bear markets occur, on average, every 3.6 years.
4. Bear markets are usually short-lived since the average length of a bear market is about 9.6 months. That’s way shorter than the average length of a bull market, which is 2.7 years.
5. Bear markets have been less frequent since World War II.
6. During a bear market, stocks lose an average of 36%.
7. 50% of the market’s strongest days in the past 20 years occurred during a bear market. Another 34% of the best days occurred in the first two months of a bull market, when we may not even know that we are past a trough. That’s why we shouldn’t time the market.
8. A bear market doesn’t equate to an impending recession. Since 1929, there have been 26 bear markets but only 15 recessions.
9. Over a 50-year investment horizon, you can expect to go through around 14 bear markets. This shows that market downturns are a normal part of the investment process.
10. Bear markets are painful, but overall, markets have been rising most of the time. Over the last 92 years, bear markets made up only 20.6 of those years. In other words, stocks have been on the rise 78% of the time. This is despite pandemics, recessions, inflation, deflation and wars.
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