Global Stocks: A Long Run Review

A fear that many investors have, is investing right at the start of a bear market. The present bull market, currently in its 15th year, has left a long wake of defeated bears as the global stock market continues its advance higher.

Secular markets matter

Secular bull markets (highlighted by the green shaded regions) tend to have higher returns when compared to the longterm average. Conversely, secular bear markets (highlighted by the red shaded regions) tend to have lower than longterm average returns.

Zooming in to the past 2 bear markets during the 70s and 2000s, you can see that both periods resulted in negative returns (-2.36% p.a. and -2.79% p.a. respectively.) However, the individual investor experience is better expressed through the average annualised rolling returns.

Why? Because the overall average of per annum returns assume that all investors entered the market at the precise moment the secular bear started. The average annualised rolling returns are a better representation for any and all participants entering the market throughout the entire secular bear period. These numbers tell a different story, showing us that investing in a secular bear can still yield positive results — take the secular bear market of the 1970s for example — which has a negative average per annum return, but a one-year average annualised rolling return of 5.05%.

Investors that started their investing journey in the last 15 years, would only have experienced an environment that has been conducive for market. Secular bull markets do not last forever and when they end, they give way to the next secular bear market.

Secular bear years amount to a total of 14, versus 40 years of bull market. 26% of the historical record is rather significant. However, that does not mean that you should sell all your investments. This is because secular bull regimes can last for long periods of time, and missing out on those returns can be very costly to your longterm wealth.

How to apply evidence to your investments

Our Risk Matrix allows us to reduce allocation risk assets and preserve capital during periods of high market stress or dislocation that precedes large declines — typically seen during secular bear markets. However, if you do not have access to sophisticated, institutional-level risk management systems, investors can still benefit by keeping these basic concepts in mind:

  • Your investment experience depends on when you start

    Because secular markets last for many years, your experience can be highly skewed based on when you started your investment journey. An investor that started investing in the year 2000 might erroneously conclude after 10 years that investing does not reap a return. Conversely, investing in the last 15 years might cause an investor to conclude that the market only goes up with relatively mild declines.

  • Time is your friend

    If you started investing at the start of a bear market, or ended your investing career in a bear market, historically, as long as you stayed invested across two secular regimes, you would have a reasonable rate of return. The biggest losses are realised when investor sell out during or after a bear market. The saying “Tough times don’t last, tough people do” bears much wisdom in investing.

  • You do not have to be afraid of bear markets

    Here we write about how you can still accumulate more wealth than investing right at the bottom of the market.

  • Don’t time the market

    The 1995 quote from famed American fund manager, Peter Lynch explains why selling out of your investments in preparation for a downturn is probably not a good idea. “Far more money has been lost by investors in preparing for corrections, or anticipating corrections, that has been lost in corrections themselves.”

Click here if you would like to find out how you can have a better investment experience.


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Investing Is Tough, Even For Professionals

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The High Cost of Complexity