S and P 500 history of bear markets and recovery

[Jon277]

"To help you live up to your contrarian bona fides, I analyzed how you would have done if, in every bear market since World War II, you bought stocks on the day the S&P 500 closes below the 20% loss threshold. Sometimes that day came near the end of the bear market, and in other cases the market continued falling before eventually turning up. But on average you would have done very well.

And you wouldn’t have had to wait that long to do so. Over the 12 months following your buys, your average total return would have been 22.7%. That’s more than double the stock market’s long-term average, as you can see from this chart."

more on the link - just about getting tempted to top up some trackers


https://www.marketwatch.com/story/those-who-buy-stocks-the-day-after-the-s-p-500-enters-a-bear-market-have-made-an-average-of-22-7-in-12-months-11655224023

[OhNoNotimAgain]

Pointless exercise to generate click bait

[JohnW]

And if you'd bought stocks when your money was available rather than waiting for the 20% fall you should expect to do better still. Here's the data, and it applies to 5%, 10% and all the others. https://www.bogleheads.org/forum/viewto ... 2#p6196749

[minnow]

It's easy to draw the wrong conclusions from this article imho. While it's moderately interesting to learn that 20% drawdowns tend (on average) to rebound back to the starting level after about a year, in no way is this a "shrewd contrarian strategy" as the subtitle claims. To trade on this information you'd need to be sitting in cash and patiently waiting, which as JohnW has pointed out tends to be a losing strategy. Of course, if you just inherited a large cash sum then fill ya boots !

[vand]

And if you'd bought stocks when your money was available rather than waiting for the 20% fall you should expect to do better still. Here's the data, and it applies to 5%, 10% and all the others. https://www.bogleheads.org/forum/viewto ... 2#p6196749

That may be true, but I don't think it invalidates OP's post.

Most of us earn money steadily and put money into their investments on a monthly basis. We're not timing the market, we're just steadily accumulating.

The takeaway should be that now is the time when it is most important to be sticking by your long term strategy. If you are unable to execute your long strategy when the market is doing what we know it has done in the past and will do again.. then you have no strategy - you're just winging it. The outsized returns you will get from investing during these periods are more important than the less good returns you will get when you are buying when the market is more overvalued.

[Hariseldon58]

And if you'd bought stocks when your money was available rather than waiting for the 20% fall you should expect to do better still. Here's the data, and it applies to 5%, 10% and all the others. https://www.bogleheads.org/forum/viewto ... 2#p6196749

That may be true, but I don't think it invalidates OP's post.

Most of us earn money steadily and put money into their investments on a monthly basis. We're not timing the market, we're just steadily accumulating.

The takeaway should be that now is the time when it is most important to be sticking by your long term strategy. If you are unable to execute your long strategy when the market is doing what we know it has done in the past and will do again.. then you have no strategy - you're just winging it. The outsized returns you will get from investing during these periods are more important than the less good returns you will get when you are buying when the market is more overvalued.

The nature of investing after falls is that you have to have the money put aside, by definition you are market timing, history suggest this fails. Do you sit on the side lines waiting for a 20% fall, you can miss a lot of gains on the way up in a lengthy bull market, or have you sold at a market high and then waited for a 20% fall, how do you determine a market high ?

Regular saving through thick and thin worked for me in accumulation mode, I must admit when markets fall I have redeployed a little cash that I took off the table when markets were climbing. The financial benefit of doing this is fairly small, but it feels good to have a plan and making something from the falls !

Well diversified portfolio with sufficient reserves to cover a few years liabilities is probably the best approach but you have to stick with it, my variation is psychologically good as I am doing something !

[OhNoNotimAgain]

Study after study has demonstrated that the longer you are invested the less important the starting prices and valuations are.
Because ....

[AWOL]

...time in the markets is greater than timing the market...

The question for anyone sitting on dry powder today is... are we at the bottom, 60% there, or at the bottom? Valuations are still higher than historic norms. The other questions are: are the other rate rises baked in? How bad will the recession be when it hits?

For drip feeders from income it doesn't matter.

For recent retirees, there are plenty of reasons to fear that sequence of return risk isn't favouring you but the flip side of this is new savers are starting in a much better environment than we were in at Christmas.

The only certainty is that valuations are better than they were. Future earnings will tell you how good.

[JohnW]

So it is commonly said. But if past estimates of future earnings were sort of accurate, but present estimates are wrongly optimistic, then valuations now are worse not better.
Since valuations depend on future earnings which are unknown, I’m not convinced price tells us about valuations.

[BT63]

...time in the markets is greater than timing the market...
The question for anyone sitting on dry powder today is... are we at the bottom, 60% there, or at the bottom? Valuations are still higher than historic norms. The other questions are: are the other rate rises baked in? How bad will the recession be when it hits?

I have a price target for the S&P500 of about 2200 which is 40% below current levels (55% below all time high) but before that I expect an imminent bear rally, another wave down and a second bear rally before seeing the final lows in mid/late 2023.

[Jon277]

And if you'd bought stocks when your money was available rather than waiting for the 20% fall you should expect to do better still. Here's the data, and it applies to 5%, 10% and all the others. https://www.bogleheads.org/forum/viewto ... 2#p6196749

The issue I would have with this is it seems to ignore trading costs in the example given.

Trading $100 every month will have larger trading costs than lump sums as costs are fixed on plenty of brokers

[BT63]

The issue I would have with this is it seems to ignore trading costs in the example given.
Trading $100 every month will have larger trading costs than lump sums as costs are fixed on plenty of brokers

I invest some or all of my surplus income each month into index funds (OEICs) automatically by direct debit on five different dates.
Transaction costs are negligible whether buying or selling even in small quantities (about £25 minimum transaction). Shares, ITs and ETFs admittedly would have dealing costs.

[JohnW]

The issue I would have with this is it seems to ignore trading costs in the example given.

Trading $100 every month will have larger trading costs than lump sums as costs are fixed on plenty of brokers

Good point. In theory, theory and practice are the same, but in practice they’re not.
There are however some low or no fee brokers these days.