Graphs of 6 biggest Bear markets in US

[DaleMaley]

This week's issue of Business Week has interesting graphs of the 6 biggest U.S. Bear markets:

[richard]

I'm partial to the charts at http://www.dshort.com, including

[Robert The Bruce]

It is possible that we'll see a decade or more with little change as seen from 1966 to 1982. The 1973 decline was just a small part of a lackluster 16 years when the Dow (before dividends) lost 18%. See:
http://www.chartresearch.com/SecularDow6682.htm

I admit, it does appear there were plenty of opportunities to rebalance during those 18 years.

[nisiprius]

I'm no cheerleader for stocks, but I wish to heck the press would quit using nominal values of capital, without reinvestment, as their measure of market recovery. It's not as good as the cheerleaders would suggest, but it's not as bad as that article says.

I decided on my personal standard as to what should be considered recovery. I object strongly to the idea that stocks recovered by 1936 for various reasons, but, corrected for inflation, someone who invested in 1929 and held, reinvesting dividends, to 1942, was not only made whole but stayed whole, and by 1954 had earned an average 5% real on their investment, which also pretty much stuck.

In other words, I like 1954 as a year, but to my way of thinking the stock market recovered by 1942 and didn't just recover, it made up lost ground by 1954.

[nisiprius]

[quote="nisiprius"]I'm no cheerleader for stocks, but I wish to heck the press would quit using nominal values of capital, without reinvestment, as their measure of market recovery. It's not as good as the cheerleaders would suggest, but it's not as bad as that article says.

I decided on my personal standard as to what should be considered recovery. I object strongly to the idea that stocks recovered by 1936 for various reasons, but, corrected for inflation, someone who invested in 1929 and held, reinvesting dividends, to 1942, was not only made whole but stayed whole, and by 1954 had earned an average 5% real on their investment, which also pretty much stuck.

In other words, I like 1954 as a milepost, but to my way of thinking the stock market recovered by 1942. By 1954 it hadn't just recovered, it pretty much made up lost ground.

[Chuck T]

Dale and Richard

Thanks for the great graphs. Hopefully things will turnaround sooner rather than later such as the great depression when the markets did not recover their 1929 level until 1954. If that is the case, I probably won't live to see it. Cheers

[bob90245]

In trying to determine recovery from 1929 peak, I added line aids to the Credit Suisse chart:



Unaltered chart HERE

[BlueEars]

I'm no cheerleader for stocks, but I wish to heck the press would quit using nominal values of capital, without reinvestment, as their measure of market recovery. It's not as good as the cheerleaders would suggest, but it's not as bad as that article says.

I don't quite know what you mean by this. It is true that the Bussiness Week article left off inflation/deflation. For instance, during the 1973-74 decline there was a total 19% inflation which makes it a lot worst then pictured above.

I decided on my personal standard as to what should be considered recovery. I object strongly to the idea that stocks recovered by 1936 for various reasons, but, corrected for inflation, someone who invested in 1929 and held, reinvesting dividends, to 1942, was not only made whole but stayed whole, and by 1954 had earned an average 5% real on their investment, which also pretty much stuck.

When I took the annual French-Fama data and corrected it for inflation (deflation) it sure looked to me like the Market (roughly TSM as I understand it) recovered by 1936 as did small value, midcaps and large value. There was another slide in 1937. Is this what you are referring to? I suppose we could say that the recovery from the 1937 slide was delayed by World War 2. The annualized FF data does not show the absolute market peak with the 17% gain from 1929 start to Aug 1929.

The inflation corrected FF data shows a Market recovery that was more sustained by the start of 1944 and probably a bit earlier for SV and midcaps with LV recovery to the 1929 start by 1945.

[White Coat Investor]

As long as we're posting charts, I thought I'd post this one:

http://www.epmonthly.com/images/stories ... _chart.pdf

I don't recall exactly how to put the picture in the thread if someone can help with that.

[DaleMaley]

As long as we're posting charts, I thought I'd post this one:

I don't recall exactly how to put the picture in the thread if someone can help with that.

How did I do that?

-open adobe to see graph
-hit print screen
-paste into paintbrush
-cut graph only
-paste into new paintbrush
-save as file
-upload file to www.tinypic.com
-paste resultant script into newsgroup

[RockyMountain]

There has been a lot of discussion about whether our current downturn will turn out to be a depression. In the Great Depression, stocks fell 89.2%. Currently, we're down "only" 56.3 %. To match the GD, stocks would have to fall another 75% FROM HERE. Put that in your pipe and smoke it.

[stratton]

I'll post one of my favorite short articles again...

Winning Investment Style in a Bear Market

Using data provided by Fama/French benchmark style portfolios, I calculated one-year returns of the four investment styles from the month stocks entered a bear market. The results are tabulated below.

Even though small value does the best I'd want to keep some exposure to TSM for that "just in case" moment that occaissionally shows up.

Paul

edit: added TSM comment.

[BlueEars]

There has been a lot of discussion about whether our current downturn will turn out to be a depression. In the Great Depression, stocks fell 89.2%. Currently, we're down "only" 56.3 %. To match the GD, stocks would have to fall another 75% FROM HERE. Put that in your pipe and smoke it.

When I took the annualized French-Fama data and corrected it for inflation (deflation) the 1929 to 1932 return was -59.7% for a TSM like market return. Note this is not absolute market peak to absolute bottom, just 4 bad years. And this says nothing about the social disaster that happened then.

This got me curious so I looked up the DJIA data for price, yield and then CPI corrected it. It gave a return of -67.5% for 1929 to 1932.

[grabiner]

I'll post one of my favorite short articles again...

Winning Investment Style in a Bear Market
Using data provided by Fama/French benchmark style portfolios, I calculated one-year returns of the four investment styles from the month stocks entered a bear market.

Even though small value does the best I'd want to keep some exposure to TSM for that "just in case" moment that occaissionally shows up.

And I agree with this point, because there is an interesting bias in the data; it is more likely that a period in which small-cap value outperforms large-cap growth will be a bear market. If large-cap stocks drop 25% and small-cap stocks don't drop, the total market is down 20%, and that is a bear market. If small-cap stocks drop 25% and large-cap stocks don't drop, the total market is down only 5%, and that isn't considered a bear market. Growth and value behave the same way since Fama/French don't split the market 50-50. As an example, 2001 would not have been a bear market for a portfolio dominated by small value, so it would not have made the list.

It may still be that small-cap value is most likely to outperform in a bear market, but every bear is different, and it's worth owning all four corners so that you will have whichever segment of the market is doing best. (I'm a 25x4 investor, currently underweight in large value because I don't have enough room in my Roth IRA.)

[Rodc]

I'll post one of my favorite short articles again...

Winning Investment Style in a Bear Market
Using data provided by Fama/French benchmark style portfolios, I calculated one-year returns of the four investment styles from the month stocks entered a bear market.

Even though small value does the best I'd want to keep some exposure to TSM for that "just in case" moment that occaissionally shows up.

And I agree with this point, because there is an interesting bias in the data; it is more likely that a period in which small-cap value outperforms large-cap growth will be a bear market. If large-cap stocks drop 25% and small-cap stocks don't drop, the total market is down 20%, and that is a bear market. If small-cap stocks drop 25% and large-cap stocks don't drop, the total market is down only 5%, and that isn't considered a bear market. Growth and value behave the same way since Fama/French don't split the market 50-50. As an example, 2001 would not have been a bear market for a portfolio dominated by small value, so it would not have made the list.

It may still be that small-cap value is most likely to outperform in a bear market, but every bear is different, and it's worth owning all four corners so that you will have whichever segment of the market is doing best. (I'm a 25x4 investor, currently underweight in large value because I don't have enough room in my Roth IRA.)

Good points.

[Adrian Nenu]

Thanks for the great charts. If we throw out the extreme 1929-1932 monster bear market, the average significant bear market decline is about 50%.

Adrian
anenu@tampabay.rr.com