Putting bulls and bears into perspective
Anyone who watches the financial report on the nightly news will be aware of media discussion about this being a new ‘bear’ market.
This makes for great headlines, but there is really no accepted definition of a ‘bull’ or ‘bear’ market. In popular parlance, a bear market is achieved when a market declines 20% in price terms over at least two months. But generally, a bear market is seen as a period when negative sentiment is overwhelming, and selling breeds selling. By contrast, a bull market is marked by rising investor confidence and exuberant buying.
But, some long-term perspective is required.
In this example, we show all the bull and bear markets in Australia going back to the early 1980s. We have used the popular view as the definition of bull and bear: being cumulative market moves of 20% or more from peak to trough.
The chart shows that, by this definition, the average duration of each bull market is 941 days, or about two-and-a-half years. The average bear market in this time has lasted 281 days, or about 10 months.
Australia has had six recognised bear markets since the early 1980s; with the average loss being 32% from peak to trough. As of the end of July this year, the Australian market was down 26% from the peak reached nine months before in November 2007.
This is not to claim that this particular down market is nearly over. But it does provide some historical context — and shows that cycles come and go in equity markets, as in economies.
The only way to ensure you are positioned for the next bull market is to stay invested — according to the requirements of your age, risk profile, investment and life circumstances.
