Archives: 2008 September

Bear markets have been as short as 2 months and as long as 5 years, the average being about 18 months. This current bear is already the longest in 60 years, which of itself suggests that although we may see what many analysts call a new bull market, it will more likely resemble those baby bulls of the 1930s and 1970s than the major bull market of the 1990s. Also, it should be noted that, in the 20th century, markets were in a bear phase for 341 months (i.e., 28 years of bear markets), and, in the last 90 years, we have been in bear markets 35% of the time. If that statistic doesnt change your belief in a buy and hold investment strategy, nothing will.

Clearly, this makes the stock market a dangerous place with a pitfall hidden under every third stepping stone. Not only does it mean the permanently bullish investor only has two chances in three at best, but when you consider that the depressed psychological climate at bear market bottoms prevents the majority from investing at the best time, it means that, by the time the majority of investors recognize a bull market is present, it is half-gone. But by showing you how to face bear markets with confidence, and make money in them.

Market analysis is not a science, it is an art, using intuition and experience to make sense of evolving data. Past patterns may at times not have their usual relevance for future predictions.

But then markets topped out, Nasdaq crashed, and the war on terrorism gave the media permission to use the word recession, without being accused of talking down the market. Investors were left wondering what to do with stocks that in many cases had already lost a substantial portion of their value in the prior 2 years. Their magic bullet software programs failed them, and they lacked basic market know how, or how to invest in what appears to be the early stages of a protracted bear market.

Simply knowing how to make respectable buy and sell decisions is not enough. Nobody in the history of Wall Street has ever guessed right all the time. Its therefore necessary not only to decide how to predict market direction, but what strategies to use to minimize losses when you guess wrong, and maximize your profits when you are right.

1973 This one was scary! From a high of 1067 in January 1973, the market slid relentlessly down to its final low of 570 in December 1974. Its catalyst was the oil crisis. For the first time in American stock market history, a foreign power, or group of powers, were able to precipitate an economic slowdown. We had entered a new level of globalization after which the world would never be the same.

1977 DJIA fell fairly gradually, though gathering some momentum as it went from just over 1000 in January 1977 to a low of 736 in March 1978. Nothing dramatic caused it; rather more of the same of the past decade: increasing oil prices with dollar stability problems steadily worsening.

1981 This bear snuck up on people. DJIA made a rare quadruple top that convinced most investors it was building strength to break through. DJIA fell from 1025 in April 1981 to a low of 770 in August 1982, or 255 points. A mere 17-month-long bear, it led to a recession which was more severe than the stock market fall would indicate.

History never repeats exactly. When we look to history for indicators of what the future might bring, we need to take a little of this model and a little of that in order to create a new composite model that is unlike anything that has happened before. This lesson has been forgotten after 20 years of an almost unbroken bull market.

The possibility that we could get a protracted multi-year global bear market and recession is outside the comprehension of most investors. Most floor traders and fund managers today began their careers after 1980, so have no personal experience of the massive inflationary bear market of the 1970s. And when it began in 1966, many of them were not yet born.

Technology Foster Lazy thinking

Since the introduction of stock market software, it has become increasingly fashionable to compare todays stock market patterns with past models, without taking into consideration that what created those particular patterns were not just market related but caused by cultural and political factors as well.

The invention of the Internet has brought about many changes in the way that we conduct our lives and our personal business. We can pay our bills online, shop online, bank online, and even date online!

We can even buy and sell stocks online. Traders love having the ability to look at their accounts whenever they want to, and brokers like having the ability to take orders over the Internet, as opposed to the telephone.

Most brokers and brokerage houses now offer online trading to their clients. Another great thing about trading online is that fees and commissions are often lower. While online trading is great, there are some drawbacks.

If you are new to investing, having the ability to actually speak with a broker can be quite beneficial. If you aren’t stock market savvy, online trading may be a dangerous thing for you. If this is the case, make sure that you learn as much as you can about trading stocks before you start trading online.