The length of the average bear market is about 14 months. Does that mean you should stay out of the market for a year once we hit a bear market? (Photo: Shutterstock)
Do you know how much money you could make if you constantly sold at the market high and bought at the market low? Your returns would dwarf those of Warren Buffett.
Does this make Warren Buffett an investing fool? He doesn't worry about timing the market. And he's been investing long enough to know.
Christopher Carosa, CTFA, is chief contributing editor for FiduciaryNews.com, a leading provider of essential news and information, blunt commentary and practical examples for ERISA/401(k) fiduciaries, individual trustees and professional fiduciaries.
"I don't know anybody that could time markets over the years," Buffett told CNBC viewers in 2017. "You'd be making a terrible mistake if you stay out of a game you think is going to be very good over time because you think you can pick a better time to enter."
The length of the average bear market is about 14 months. Does that mean you should stay out of the market for a year once we hit a bear market? If you did, you'd have missed out on some impressive gains in about half of all the bear markets since 1961.
Three of those bear markets lasted no more than six months, while the shortest (in 1990) lasted only three months.
"Ah, yes," you say. "The length of a bear market is one thing, but it is the length of the recovery that tells the real story."
You wouldn't be wrong in saying this. The average length to recover is 25 months—roughly two years.
But again, this is only the average. Actual recoveries have taken as long as 69 months (in the 1973 bear market) and as short as three months (in the 1980 bear market).
Here's the odd thing about both the 1973 and 1980 bear markets: They both lasted 21 months. Yet one took more than five years to recover from, while the other took only a quarter.
Likewise, the bear markets of 1987 (four months) and 1990 (three months) each had similar durations; yet it took 20 months to recover from the 1987 one, while the 1990 bear market was erased in only four months.
Such is the folly of market timing. With the market having gone up for so long, many people are experiencing a bear market for the very first time. Over the past 50 years or so, a bear market has occurred once every 6.5 years. It's been nearly twice as long since we had our last bear market.
It's likely, just as people may have forgotten what a bear market feels like, so, too, have they forgotten the dangers of marketing timing.
Market timing is the true mark of the investing fool. It requires two immaculately correct decisions: when to buy and when to sell. And you have to do it over and over again, for the minute the wheel comes up red when you've bet it all on black, you lose everything.
Indeed, in a 2014 CNBC interview, Warren Buffett said, "If they think they can dance in and out [of the market] and buy and sell stocks, they ought to head for Las Vegas."
Perhaps that's why they call him the Oracle of Omaha.
Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.
Your access to unlimited BenefitsPRO content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking benefits news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
