Plenty of very smart people are wondering right now if we are due a very big rally. And maybe they are right. It is certainly true that there are an incredible number of bargains around.
But that won’t necessarily mean the bear market is over.
A look through the archives shows that big bear markets, like this one, last far longer than many people expect. And they feature any number of giant temporary rallies.
Japan’s big bear market began in early 1990 and still hasn’t clearly ended.
Yet during that time Japan has seen 13 separate rallies of 15% or more. Some were huge, and fooled many into thinking the bear market was over and the new bull market had begun.
Between late 1990 and the middle of 1994, the Nikkei rose by a third or more four times. Twice – in 1995-1996 and in the late 1990s – it rocketed by more than 50%. From 2003 through 2006 it more than doubled. Yet after each boom the market collapsed back to fresh lows.
Most Wall Street historians will tell you that the slump that began with the Wall Street crash of 1929 hit its record low just three years later, in 1932. But what they often forget is that that’s just half the story.
The market stayed depressed for 17 years in total. By 1946, the Dow Jones was back down to levels well below the lows seen at the tail end of 1929, after the initial crash.
But during the interim there were 16 separate rallies of 15% or more. Some were enormous.
The market jumped nearly 50% after November 1929. Investors must have thought they were witnessing the launch of a new bull market in 1932, when the market soared 77%, and in 1933, when it more than doubled. One rally lasted years–from 1935 through 1937 the Dow Jones Industrial Average doubled, before crashing again.
In 1938, and again in 1942-1943, the Dow soared more than 50% before falling back to earth.
There was a big bear market in the 1970s, and surging inflation made the actual hit to investors much worse. Between 1969 and 1982 the market lost two-thirds of its real value.
Yet during that time there were seven big rallies, including three of more than 40%.
I am not turning into a megabear. There will be bull markets again. The world has not come to an end. Much more importantly, there are now an incredible number of stocks around that look very good value. Many offer very generous dividend yields.
Those who buy good stocks cheaply and hang on for a long time tend to make a lot of money. But it’s important to stay disciplined.
